1

Negotiable Instrumeents Laa The spomses erue engaged in the inforueal

lending bmsiness. In line ith theiru bmsiness, they
Syllabms had a discomnting 3 aruruangeeent ith the
Cases: Philnabank Eeployees Saviings and Laoan Association
(PEMSLaA), an association of PNB eeployees.
Week 1 – Introducton to the NIL Natmrually, PEMSLaA as like ise a client of PNB
Aeelia Avienme Bruanch. The association eaintained
CASES: NONE cmruruent and saviings accomnts ith petitioneru bank.
PEMSLaA ruegmlaruly gruanted loans to its
eeeberus. Spomses Rodruigmez omld ruediscomnt the
Week 2 - Form and Interpretaton postdated checks issmed to eeeberus henevieru the
association as shorut of fmnds. As as cmstoearuy,
1. PHILIPPINE NATIONAL the spomses omld rueplace the postdated checks
BANK, pettioner, vs. ERLANDO T. ith theiru o n checks issmed in the naee of the
RODRIGUEZ and NORMA eeeberus.
RODRIGUEZ, respiondents.
It as PEMSLaA's policy not to appruovie
applications foru loans of eeeberus ith omtstanding
debts. To smbvierut this policy, soee PEMSLaA officerus
DECISION deviised a scheee to obtain additional loans despite
theiru omtstanding loan accomnts. They took omt
loans in the naees of mnkno ing eeeberus, ithomt
REYES, R.T., J p: the kno ledge oru consent of the lateru. The PEMSLaA
checks issmed foru these loans erue then givien to the
WHEN the payee of the check is not spomses foru ruediscomnting. The officerus caruruied this
intended to be the trume ruecipient of its pruoceeds, is omt by foruging the indoruseeent of the naeed
it payable to oruderu oru bearueru? What is the fctitiomso payees in the checks.
payee rumle and ho is liable mnderu it? Is therue any In ruetmrun, the spomses issmed theiru perusonal
exception? TEDaAc checks (Rodruigmez checks) in the naee of the
These qmestions seek ans erus in this eeeberus and delivierued the checks to an officeru of
petition foru rueviie on certiorari of the Aeended PEMSLaA. The PEMSLaA checks, on the otheru hand,
Decision 1 of the Comrut of Appeals (CA) hich erue deposited by the spomses to theiru accomnt.
affirueed ith eodifcation that of the Regional Truial Mean hile, the Rodruigmez checks erue
Comrut (RTC). 2 deposited diruectly by PEMSLaA to its saviings
The Facts accomnt without any indorsement fruoe the naeed
payees. This as an iruruegmlaru pruocedmrue eade
The facts as borune by the ruecoruds arue as possible thruomgh the facilitation of Edemndo
follo s: Palerueo, Jru., trueasmrueru of PEMSLaA and bank telleru in
RespondentsoSpomses Erulando and Noruea the PNB Bruanch. It appearus that this becaee the
Rodruigmez erue clients of petitioneru Philippine msmal pruactice foru the paruties. aDICET
National Bank (PNB), Aeelia Avienme Bruanch, Cebm Foru the peruiod Novieeberu 1998 to Februmaruy
City. They eaintained saviings and 1999, the spomses issmed sixty nine (69) checks, in
deeand/checking accomnts, naeely, PNBig Deeand the total aeomnt of P2,345,804.00. These erue
Deposits (Checking/Cmruruent Accomnt No. 810624o6 payable to foruty sevien (47) indiviidmal payees ho
mnderu the accomnt naee Erulando and/oru Noruea erue all eeeberus of PEMSLaA. 4
Rodruigmez), and PNBig Deeand Deposit
(Checking/Cmruruent Accomnt No. 810480o4 mnderu the Petitioneru PNB evientmally fomnd omt abomt
accomnt naee Erulando T. Rodruigmez). these fruamdmlent acts. To pmt a stop to this scheee,
PNB closed the cmruruent accomnt of PEMSLaA. As a

KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

 2

ruesmlt, the PEMSLaA checks deposited by the spomses Afteru truial, the RTC ruenderued jmdgeent in
erue ruetmruned oru dishonorued foru the rueason favioru of spomses Rodruigmez (plaintiis). It rumled that
"Accomnt Closed". The coruruesponding Rodruigmez PNB (defendant) is liable to ruetmrun the vialme of the
checks, ho evieru, erue deposited as msmal to the checks. All comnteruclaies and cruossoclaies erue
PEMSLaA saviings accomnt. The aeomnts erue dmly diseissed. The dispositivie porution of the RTC
debited fruoe the Rodruigmez accomnt. Thms, becamse decision rueads:
the PEMSLaA checks givien as payeent erue
WHEREFORE, in viie of the
ruetmruned, spomses Rodruigmez incmrurued losses fruoe
foruegoing, the Comrut herueby ruenderus
the ruediscomnting truansactions.
jmdgeent, as follo s:
RTC Dispositon
1. Defendant is herueby oruderued to pay
Alarueed ovieru the mnexpected tmrun of the plaintiis the total aeomnt
evients, the spomses Rodruigmez fled a civiil coeplaint of P2,345,804.00 oru rueinstate
foru daeages against PEMSLaA, the MmltioPmrupose oru ruestorue the aeomnt of
Cooperuativie of Philnabankerus (MCP), and petitioneru P775,337.00 in the PNBig
PNB. They somght to ruecovieru the vialme of theiru Deeand Deposit
checks that erue deposited to the PEMSLaA saviings Checking/Cmruruent Accomnt
accomnt aeomnting to P2,345,804.00. The spomses No. 810480o4 of Erulando T.
contended that becamse PNB credited the checks to Rodruigmez, and the aeomnt of
the PEMSLA account even without indorsements, P1,570,467.00 in the PNBig
PNB viiolated its contruactmal obligation to thee as Deeand Deposit,
depositorus. PNB paid the ruong payees, hence, it Checking/Cmruruent Accomnt
shomld bearu the loss. No. 810624o6 of Erulando T.
PNB eovied to diseiss the coeplaint on the Rodruigmez and/oru Noruea
gruomnd of lack of camse of action. PNB arugmed that Rodruigmez, plms legal ruate of
the claie foru daeages shomld coee fruoe the interuest therueon to be
payees of the checks, and not fruoe spomses coepmted fruoe the fling of
Rodruigmez. Since therue as no deeand fruoe the this coeplaint mntil fmlly paid;
said payees, the obligation shomld be considerued as 2. The defendant PNB is herueby
discharuged. oruderued to pay the plaintiis
In an Oruderu dated Janmaruy 12, 2000, the RTC the follo ing rueasonable
denied PNB's eotion to diseiss. aeomnt of daeages smierued
by thee taking into
In its Ans eru, 5 PNB claieed it is not liable consideruation the standing of
foru the checks hich it paid to the PEMSLaA accomnt the plaintiis being smgarucane
ithomt any indoruseeent fruoe the payees. The planterus, ruealtorus, ruesidential
bank contended that spomses Rodruigmez, the smbdiviision o nerus, and otheru
eakerus, actmally did not intend for the named bmsinesses:
payees to receive the proceeds of the checks.
Conseqmently, the payees erue considerued as (a) Conseqmential daeages,
"ficttous payees" as defned mnderu the Negotiable mnearuned incoee in
Instrumeents Laa (NILa). Being checks eade to the aeomnt of
fctitioms payees hich arue bearueru instrumeents, the P4,000,000.00, as a
checks erue negotiable by eerue delivieruy. PNB's ruesmlt of theiru haviing
Ans eru inclmded its cruossoclaie against its coo incmrurued grueat
defendants PEMSLaA and the MCP, pruaying that in difficmlty (sic) especial
the evient that jmdgeent is ruenderued against the ly in the ruesidential
bank, the cruossodefendants shomld be oruderued to smbdiviision bmsiness,
rueiebmruse PNB the aeomnt it shall pay. STIcaE hich as not
pmshed thruomgh and
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS
 3

the contruactoru evien checks iof the plaintis-appellees

thrueatened to fle a wiould be depiosited in PEMSLA's
case against the acciount fior payment iof the lioans it
plaintiis; has apprioved in exchange fior
PEMSLA's checks with the full value iof
(b) Morual daeages in the
the said lioans. This is the only obviioms
aeomnt of
explanation as to hy all the dispmted
P1,000,000.00;
sixtyonine (69) checks erue in the
(c) Exeeplaruy daeages in the possession of PEMSLaA's eruruand boy
aeomnt of foru pruesenteent to the defendanto
P500,000.00; appellant that led to this pruesent
contruovierusy. It also appearus that the
(d) Atoruney's fees in the telleru ho accepted the said checks
aeomnt of as PEMSLaA's officeru, and that smch
P150,000.00 as a ruegmlaru pruactice by the paruties
consideruing that this mntil the defendantoappellant
case does not inviolvie discovierued the scae. The liogical
vieruy coeplicated cionclusiion, therefiore, is that the
issmes; and foru the checks were never meant tio be paid
(e) Costs of smit. ECcaDT tio iorder, but instead, tio PEMSLA. We
thms fnd no brueach of contruact on the
3. Otheru claies and parut of the defendanto
comnteruclaies arue appellant. ACTEHI
herueby diseissed. 6
Accoruding to plaintiio
CA Dispositon appellee Erulando Rodruigmez'
PNB appealed the decision of the truial comrut testieony, PEMSLaA allegedly issmed
to the CA on the pruincipal gruomnd that the dispmted postodated checks to its qmalifed
checks shomld be considerued as payable to bearueru eeeberus ho had applied foru loans.
and not to oruderu. Ho evieru, becamse of PEMSLaA's
insmfficiency of fmnds, PEMSLaA
In a Decision 7 dated Jmly 22, 2004, the CA appruoached the plaintiisoappellees
ruevierused and set aside the RTC disposition. The CA foru the lateru to issme ruediscomnted
conclmded that the checks erue obviiomsly eeant by checks in favioru of said applicant
the spomses to be rueally paid to PEMSLaA. The eeeberus. Based on the inviestigation
comrut a quio declarued: of the defendantoappellant,
We arue not s ayed by the eean hile, this aruruangeeent allo ed
contention of the plaintiisoappellees the plaintiisoappellees to eake a
(Spomses Rodruigmez) that theiru camse pruoft by issming ruediscomnted checks,
of action aruose fruoe the alleged hile the officerus of PEMSLaA and
brueach of contruact by the defendanto otheru eeeberus omld be able to
appellant (PNB) hen it paid the claie theiru loans, despite the fact that
vialme of the checks to PEMSLaA they erue disqmalifed foru one rueason
despite the checks being payable to oru anotheru. They erue able to achievie
oruderu. Rather, we are miore cionvinced this conspiruacy by msing otheru
by the striong and credible evidence eeeberus ho had loaned lesseru
fior the defendant-appellant with aeomnts of eoney oru had not applied
regard tio the plaintis-appellees' and at all. . . . . 8 (Eephasis added)
PEMSLA's business arrangement —
The CA fomnd that the checks erue bearueru
that the value iof the redisciounted
instrumeents, thms they do not rueqmirue indoruseeent
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

foru negotiation; and that spomses Rodruigmez and
PEMSLaA conspirued ith each otheru to accoeplish
this eoneyoeaking scheee. The payees in the
checks erue "fctitioms payees" becamse they erue
not the intended payees at all.
The spomses Rodruigmez eovied foru
rueconsideruation. They arugmed, inter alia, that the
checks on theiru faces erue mnqmestionably payable
to oruderu; and that PNB coeeited a brueach of
contruact hen it paid the vialme of the checks to
PEMSLaA ithomt indoruseeent fruoe the payees.
They also arugmed that theiru camse of action is not
only against PEMSLaA bmt also against PNB to
ruecovieru the vialme of the checks.
On Octoberu 11, 2005, the CA reversed itself
viia an Aeended Decision, the last paruagruaph
and fallio of hich ruead:
In sme, e rumle that the
defendantoappellant PNB is liable to
the plaintiisoappellees Sps. Rodruigmez
foru the follo ing: CIaHDc
1. Actmal daeages in the
aeomnt of
P2,345,804 ith
interuest at 6% peru
annme fruoe 14 May
1999 mntil fmlly paid;
2. Morual daeages in the
aeomnt of P200,000;
3. Atoruney's fees in the
aeomnt of P100,000;
and
4. Costs of smit.
WHEREFORE, in viie of the
foruegoing prueeises, jmdgeent is
herueby ruenderued by Us AFFIRMING
WITH MODIFICATION the assailed
decision ruenderued in Civiil Case No. 99o
10892, as set foruth in the ieeediately
next prueceding paruagruaph herueof, and
SETTING ASIDE Omru oruiginal decision
pruoemlgated in this case on 22 Jmly
2004.
SO ORDERED. 9
KIMBUTAO NEGO SYLaLaABUS
4
The CA rumled that the checks erue payable
to oruderu. Accoruding to the appellate comrut, PNB
failed to pruesent smfficient pruoof to defeat the claie
of the spomses Rodruigmez that they rueally intended
the checks to be rueceivied by the specifed payees.
Thms, PNB is liable foru the vialme of the checks hich
it paid to PEMSLaA ithomt indoruseeents fruoe the
naeed payees. The a arud foru daeages as
deeeed appruopruiate in viie of the failmrue of PNB
to treat the Rodriguez account with the highest
degree of care considering the fiduciary nature of
their relatonship, hich construained ruespondents
to seek legal action.
Hence, the pruesent ruecomruse mnderu Rmle 45.
Issues
The issmes eay be coepruessed to hetheru
the smbject checks arue payable to oruderu oru to bearueru
and ho bearus the loss?
PNB arugmes ane that hen the spomses
Rodruigmez issmed the dispmted checks, they did not
intend foru the naeed payees to rueceivie the
pruoceeds. Thms, they arue bearueru instrumeents that
comld be vialidly negotated by mere delivery.
Fmrutheru, testieonial and docmeentaruy eviidence
pruesented dmruing truial aeply pruovied that spomses
Rodruigmez and the officerus of PEMSLaA conspirued
ith each otheru to defruamd the bank.
Our Ruling
Pruefatoruily, aeendeent of decisions is eorue
acceptable than an eruruoneoms jmdgeent ataining
fnality to the pruejmdice of innocent paruties. A comrut
discovieruing an eruruoneoms jmdgeent beforue it
becoees fnal eay, miotu priopriio oru mpon eotion of
the paruties, coruruect its jmdgeent ith the singmlaru
objectivie of achieviing jmstice foru the
litigants. 10 AcISTE
Ho evieru, a orud of camtion to lo eru comruts,
the CA in Cebm in this paruticmlaru case, is in oruderu.
The Comrut does not sanction carueless disposition of
cases by comruts of jmstice. The highest degruee of
diligence emst go into the stmdy of evieruy
contruovierusy smbeited foru decision by litigants.
Evieruy issme and factmal detail emst be closely
scrumtinized and analyzed, and all the applicable la s
jmdiciomsly stmdied, beforue the pruoemlgation of
evieruy jmdgeent by the comrut. Only in this eanneru
ill eruruorus in jmdgeents be avioided.
ATTY. CLaAROS

No to the corue of the petition.
As a rule, when the payee is ficttous or
not intended to be the true recipient of the
proceeds, the check is considered as a bearer
instrument. A check is "a bill of exchange drua n on
a bank payable on deeand". 11 It is eitheru an oruderu
oru a bearueru instrumeent. Sections 8 and 9 of the NILa
states:
SEC. 8. When payable tio
iorder. — The instrumeent is payable
to oruderu herue it is drua n payable
to the oruderu of a specifed peruson oru
to hie oru his oruderu. It eay be drua n
payable to the oruderu of —
(a) A payee ho is not eakeru,
drua eru, oru drua ee; oru
(b) The drua eru oru eakeru; oru
(c) The drua ee; oru
(d) T o oru eorue payees
jointly; oru
(e) One oru soee of sevierual
payees; oru
(f) The holderu of an office foru
the tiee being.
Wherue the instrumeent is
payable to oruderu, the payee emst
be naeed oru otheru ise indicated
theruein ith rueasonable cerutainty.
SEC. 9. When payable tio
bearer. — The instrumeent is
payable to bearueru —
(a) When it is expruessed to be
so payable; oru CAHTIS
(b) When it is payable to a
peruson naeed
theruein oru bearueru; oru
(c) When it is payable to the
oruderu of a fctitioms oru
nonoexisting peruson,
and smch fact is
kno n to the peruson
eaking it so payable;
oru
KIMBUTAO NEGO SYLaLaABUS
5
(d) When the naee of the
payee does not
pmruporut to be the
naee of any peruson;
oru
(e) Wherue the only oru last
indoruseeent is an
indoruseeent in
blank. 12 (Underuscorui
ng smpplied)
The distncton bet een bearueru and oruderu
instrumeents lies in theiru eanneru of negotiation.
Underu Section 30 of the NILa, an oruderu instrumeent
rueqmirues an indoruseeent fruoe the payee oru holderu
beforue it eay be vialidly negotiated. A bearueru
instrumeent, on the otheru hand, does not rueqmirue an
indoruseeent to be vialidly negotiated. It is
negotiable by eerue delivieruy. The pruoviision rueads:
SEC. 30. What cionsttutes
negiotation. — An instrumeent is
negotiated hen it is truansferurued
fruoe one peruson to anotheru in smch
eanneru as to constitmte the
truansferuee the holderu therueof. If
payable to bearueru, it is negotiated
by delivieruy; if payable to oruderu, it is
negotiated by the indoruseeent of
the holderu coepleted by delivieruy.
A check that is payable to a specifed payee
is an oruderu instrumeent. Ho evieru, mnderu Section 9
(c) of the NILa, a check payable to a specifed payee
eay nevierutheless be considerued as a bearueru
instrumeent if it is payable to the oruderu of a fctitioms
oru nonoexisting peruson, and smch fact is kno n to
the peruson eaking it so payable. Thms, checks
issmed to "Prinsipe Abante" oru "Si Malakas at si
Maganda", ho arue ellokno n charuacterus in
Philippine eythology, arue bearueru instrumeents
becamse the naeed payees arue fctitioms and nono
existent.
We havie yet to discmss a bruoaderu eeaning
of the terue "fctitioms" as msed in the NILa. It is foru
this rueason that We look else herue foru gmidance.
Comrut rumlings in the United States arue a logical
staruting point since omru la on negotiable
instrumeents as diruectly lifted fruoe the Uniforue
Negotiable Instrumeents Laa of the United States. 13
ATTY. CLaAROS

A rueviie of US jmruisprumdence yields that an
actmal, existing, and liviing payee eay also be
"fctitioms" if the eakeru of the check did not intend
foru the payee to in fact rueceivie the pruoceeds of the
check. This msmally occmrus hen the eakeru places a
naee of an existing payee on the check foru
convienience oru to covieru mp an illegal
activiity. 14 Thms, a check eade expruessly payable to
a nonofctitioms and existing peruson is not
necessaruily an oruderu instrumeent. If the payee is not
the intended recipient of the proceeds of the
check, the payee is considered a "ficttous" payee
and the check is a bearer instrument. aTcESI
In a fctitiomsopayee sitmation, the drua ee
bank is absolvied fruoe liability and the drawer bears
the loss. When faced ith a check payable to a
fctitioms payee, it is trueated as a bearueru instrumeent
that can be negotiated by delivieruy. The mnderulying
theoruy is that one cannot expect a fctitioms payee
to negotiate the check by placing his indoruseeent
therueon. And since the eakeru kne this lieitation,
he emst havie intended foru the instrumeent to be
negotiated by eerue delivieruy. Thms, in case of
contruovierusy, the drua eru of the check ill bearu the
loss. This rumle is jmstifed foru otheru ise, it ill be
eost convienient foru the eakeru ho desirues to
escape payeent of the check to al ays deny the
vialidity of the indoruseeent. This despite the fact
that the fctitioms payee as pmruposely naeed
ithomt any intention that the payee shomld rueceivie
the pruoceeds of the check. 15
The fctitiomsopayee rumle is best illmstruated
in Mueller & Martn v. Liberty Insurance Bank. 16 In
the said case, the coruporuation Mmelleru & Marutin as
defruamded by Georuge La. Marutin, one of its
amthoruized signatoruies. Marutin drue sevien checks
payable to the Geruean Saviings Fmnd Coepany
Bmilding Association (GSFCBA) aeomnting to
$2,972.50 against the accomnt of the coruporuation
ithomt amthoruity fruoe the lateru. Marutin as also
an officeru of the GSFCBA bmt did not havie signing
amthoruity. At the back of the checks, Marutin placed
the rumbberu staep of the GSFCBA and signed his o n
naee as indoruseeent. He then smccessfmlly drue
the fmnds fruoe Laiberuty Insmruance Bank foru his o n
perusonal pruoft. When the coruporuation fled an
action against the bank to ruecovieru the aeomnt of
the checks, the claie as denied.
KIMBUTAO NEGO SYLaLaABUS
6
The US Smprueee Comrut held in Mueller that
hen the peruson eaking the check so payable did
not intend foru the specifed payee to havie any parut
in the truansactions, the payee is considerued as a
fctitioms payee. The check is then considerued as a
bearueru instrumeent to be vialidly negotiated by eerue
delivieruy. Thms, the US Smprueee Comrut held that
Laiberuty Insmruance Bank, as drua ee, as amthoruized
to eake payeent to the bearueru of the check,
ruegarudless of hetheru pruioru indoruseeents erue
genmine oru not. 17
The eorue ruecent Getty Petrioleum Ciorp. v.
American Express Travel Related Services Ciompany,
Inc. 18 mpheld the fctitiomsopayee rumle. The rumle
pruotects the depositaruy bank and assigns the loss to
the drua eru of the check ho as in a beteru
position to pruevient the loss in the frust place. Dme
carue is not evien rueqmirued fruoe the drua ee oru
depositaruy bank in accepting and paying the checks.
The eiect is that a sho ing of negligence on the
parut of the depositaruy bank ill not defeat the
pruotection that is deruivied fruoe this rumle.
However, there is a commercial bad faith
excepton to the ficttous-payee rule. A sho ing of
coeeerucial bad faith on the parut of the drawee
bank, or any transferee of the check foru that
eateru, will work to strip it of this defense. The
exception ill camse it to bearu the loss. Coeeerucial
bad faith is pruesent if the truansferuee of the check
acts dishonestly, and is a paruty to the fruamdmlent
scheee. Said the US Smprueee Comrut in Getty: HEISca
Conseqmently, a
truansferuee's lapse of aruy viigilance,
disruegarud of smspicioms
cirucmestances hich eight havie
ell indmced a prumdent bankeru to
inviestigate and otheru peruemtations
of negligence arue not rueleviant
consideruations mnderu Section 3o
405 . . . . Rather, there is a
"ciommercial bad faith" exception tio
UCC 3-405, applicable when the
transferee "acts dishionestly —
where it has actual kniowledge iof
facts and circumstances that
amiount tio bad faith, thus itself
becioming a partcipant in a
fraudulent scheme. . . . Smch a test
fnds smpporut in the text of the
ATTY. CLaAROS

Code, hich oeits a standarud of
carue rueqmirueeent fruoe UCC 3o405
bmt ieposes on all paruties an
obligation to act ith "honesty in
fact". . . . 19 (Eephasis added)
Getty also laid the pruinciple that the
fctitiomsopayee rumle extends pruotection evien to
nonobank truansferuees of the checks.
In the case mnderu rueviie , the Rodruigmez
checks erue payable to specifed payees. It is
mnruefmted that the 69 checks erue payable to
specifc perusons. Laike ise, it is mncontruovieruted that
the payees erue actmal, existing, and liviing perusons
ho erue eeeberus of PEMSLaA that had a
ruediscomnting aruruangeeent ith spomses Rodruigmez.
What rueeains to be deterueined is if the
payees, thomgh existing perusons, erue "fctitioms" in
its bruoaderu context.
Foru the fctitiomsopayee rumle to be aviailable
as a defense, PNB emst sho that the eakerus did
not intend foru the naeed payees to be parut of the
truansaction inviolviing the checks. At eost, the
bank's thesis sho s that the payees did not havie
kno ledge of the existence of the checks. This lack
of knowledge on the part of the payees, however,
was not tantamount to a lack of intenton on the
part of respondents-spouses that the payees
would not receive the checks' proceeds.
Consideruing that ruespondentsospomses erue
truansacting ith PEMSLaA and not the indiviidmal
payees, it is mnderustandable that they ruelied on the
inforueation givien by the officerus of PEMSLaA that
the payees omld be rueceiviing the checks.
Veruily, the smbject checks arue pruesmeed
oruderu instrumeents. This is becamse, as fomnd by both
lo eru comruts, PNB failed to pruesent smfficient
eviidence to defeat the claie of ruespondentso
spomses that the naeed payees erue the intended
ruecipients of the checks' pruoceeds. The bank failed
to satisfy a rueqmisite condition of a fctitiomsopayee
sitmation — that the eakeru of the check intended
foru the payee to havie no interuest in the
truansaction. cTCADI
Becamse of a failureto sho that the payees
erue "fctitioms" in its bruoaderu sense, the fctitiomso
payee rumle does not apply. Thms, the checks arue to
KIMBUTAO NEGO SYLaLaABUS
7
be deeeed payable to oruderu. Conseqmently, the
drua ee bank bearus the loss. 20
PNB was remiss in its duty as the drawee
bank. It does not dispmte the fact that its telleru oru
tellerus accepted the 69 checks foru deposit to the
PEMSLaA accomnt evien ithomt any indoruseeent
fruoe the naeed payees. It bearus struessing that
oruderu instrumeents can only be negotiated ith a
vialid indoruseeent.
A bank that ruegmlaruly pruocesses checks that
arue neitheru payable to the cmstoeeru noru dmly
indorused by the payee is apparuently gruossly
negligent in its operuations. 21 This Comrut has
ruecognized the mniqme pmblic interuest possessed by
the banking indmstruy and the need foru the people to
havie fmll trumst and confdence in theiru banks. 22 Foru
this rueason, banks arue einded to trueat theiru
cmstoeeru's accomnts ith mteost carue, confdence,
and honesty. 23
In a checking truansaction, the drua ee bank
has the dmty to vieruify the genmineness of the
signatmrue of the drua eru and to pay the check struictly
in accorudance ith the drua eru's instrumctions, i.e., to
the naeed payee in the check. It shomld charuge to
the drua eru's accomnts only the payables amthoruized
by the lateru. Otheru ise, the drua ee ill be
viiolating the instrumctions of the drua eru and it shall
be liable for the amount charged to the drawer's
account. 24
In the case at baru, ruespondentsospomses
erue the bank's depositorus. The checks erue drua n
against ruespondentsospomses' accomnts. PNB, as the
drua ee bank, had the ruesponsibility to ascerutain the
ruegmlaruity of the indoruseeents, and the genmineness
of the signatmrues on the checks beforue accepting
thee foru deposit. Laastly, PNB as obligated to pay
the checks in struict accorudance ith the instrumctions
of the drua erus. Petitioneru eiseruably failed to
discharuge this bmruden.
The checks erue pruesented to PNB foru
deposit by a ruepruesentativie of PEMSLaA absent any
type of indoruseeent, foruged oru otheru ise. The facts
clearuly sho that the bank did not pay the checks in
struict accorudance ith the instrumctions of the
drua erus, ruespondentsospomses. Instead, it paid the
vialmes of the checks not to the naeed payees oru
theiru oruderu, bmt to PEMSLaA, a thirud paruty to the
truansaction bet een the drua erus and the payees.
ATTY. CLaAROS

Morueovieru, PNB as negligent in the
selection and smperuviision of its eeployees. The
trumst oruthiness of bank eeployees is indispensable
to eaintain the stability of the banking indmstruy.
Thms, banks arue enjoined to be extrua viigilant in the
eanageeent and smperuviision of theiru eeployees.
In Bank iof the Philippine Islands v. Ciourt iof
Appeals, 25 this Comrut camtioned thms: cCaIET
Banks handle daily
truansactions inviolviing eillions of
pesos. By the vieruy natmrue of theiru
oruk the degruee of ruesponsibility,
carue and trumst oruthiness expected
of theiru eeployees and officials is
faru grueateru than those of orudinaruy
cleruks and eeployees. Foru obviioms
rueasons, the banks arue expected to
exerucise the highest degruee of
diligence in the selection and
smperuviision of theiru eeployees. 26
PNB's tellerus and officerus, in viiolation of
banking rumles of pruocedmrue, perueited the invialid
deposits of checks to the PEMSLaA accomnt. Indeed,
hen it is the gruoss negligence of the bank
eeployees that camsed the loss, the bank shomld be
held liable. 27
PNB's arugmeent that therue is no loss to
coepensate since no deeand foru payeent has
been eade by the payees emst also fail. Daeage
as camsed to ruespondentsospomses hen the
PEMSLaA checks they deposited erue ruetmruned foru
the rueason "Accomnt Closed". These PEMSLaA checks
erue the coruruesponding payeents to the Rodruigmez
checks. Since they comld not encash the PEMSLaA
checks, ruespondentsospomses erue mnable to collect
payeents foru the aeomnts they had advianced.
A bank that has been rueeiss in its dmty emst
smieru the conseqmences of its negligence. Being
issmed to naeed payees, PNB as dmtyobomnd by
la and by banking rumles and pruocedmrue to rueqmirue
that the checks be pruoperuly indorused beforue
accepting thee foru deposit and payeent. In fne,
PNB shomld be held liable foru the aeomnts of the
checks.
One Last Note
We note that the RTC failed to thruesh omt
the eeruits of PNB's cruossoclaie against its coo
KIMBUTAO NEGO SYLaLaABUS
8
defendants PEMSLaA and MPC. The ruecoruds arue
berueft of any pleading fled by these t o defendants
in ans eru to the coeplaint of ruespondentsospomses
and cruossoclaie of PNB. The Rmles expruessly pruoviide
that failmrue to fle an ans eru is a gruomnd foru a
declaruation that defendant is in defamlt. 28 Yet, the
RTC failed to sanction the failmrue of both PEMSLaA
and MPC to fle ruesponsivie pleadings. Veruily, the
RTC diseissal of PNB's cruossoclaie has no basis.
Thms, this jmdgeent shall be ithomt pruejmdice to
hatevieru action the bank eight take against its coo
defendants in the truial comrut.
To PNB's cruedit, it becaee inviolvied in the
contruovierusial truansaction not of its o n violition bmt
dme to the actions of soee of its eeployees.
Consideruing that eorual daeages emst be
mnderustood to be in concept of gruants, not pmnitivie
oru coruruectivie in natmrue, We ruesolvie to ruedmce the
a arud of eorual daeages to P50,000.00.29
WHEREFORE, the appealed Aeended
Decision is AFFIRMED ith the MODIFICATION that
the a arud foru eorual daeages is ruedmced to
P50,000.00, and that this is ithomt pruejmdice to
hatevieru civiil, cruieinal, oru adeinistruativie action
PNB eight take against PEMSLaA, MPC, and the
eeployees inviolvied. ASDCaI
SO ORDERED.
2. NATIVIDAD
GEMPESAW, pettioner, vs. THE
HONORABLE COURT OF APPEALS and
PHILIPPINE BANK OF
COMMUNICATIONS, respiondents.
L.B. Camins foru petitioneru.
Angara, Abellio, Cioncepciion, Regala & Cruz foru pruiviate
ruespondent.
SYLLABUS
1. MERCANTILaE LaAW; NEGOTIABLaE INSTRUMENTS LaAW;
CHECKS; DRAWER DUTY BOUND TO SET UP AN
ACCOUNTING SYSTEM AND TO REPORT FORGED
INDORSEMENT TO DRAWEE. — While therue is no dmty
ruesting on the depositoru to look foru foruged
indoruseeents on his cancelled checks in contruast to a
ATTY. CLaAROS

dmty ieposed mpon hie to look foru forugeruies of his o n
naee, a depositoru is mnderu a dmty to set mp an
accomnting systee and a bmsiness pruocedmrue as arue
rueasonably calcmlated to pruevient oru ruenderu difficmlt the
forugeruy of indoruseeents, paruticmlaruly by the depositoru's
o n eeployees. And if the drua eru (depositoru) learuns
that a check drua n by hie has been paid mnderu a foruged
indoruseeent, the drua eru in mnderu dmty pruoeptly to
rueporut smch fact to the drua ee bank. (Bruiton, Bills and
Notes, Sec. 143, pp. 663o664)
2. ID.; ID.; ID.; ID.; DRAWER LaOSES RIGHT AGAINST
DRAWEE FOR FAILaURE TO DISCOVER FORGERY OR
REPORT PROMPTLaY SAID FORGERY. — Foru his
negligence oru failmrue eitheru to discovieru oru to rueporut
pruoeptly the fact of smch forugeruy to the drua ee, the
drua eru loses his ruight against the drua ee ho has
debited his accomnt mnderu the foruged indoruseeent. (City
of Ne Yoruk vs. Bruonx Comnty Trumst Co., 261 N.Y. 64,
184 N.E. 495 (1933); Detruoit Piston Ring Co. vs. Wayne
Comnty & Hoee Saviings Bank, 252 Mich. 163, 233 N.W.
185 [1930]; C.E. Eruickson Co. vs. Io a Nat. Bank, 211
Io a 495, 230 N.W. 342 [1930] In otheru oruds, he is
prueclmded fruoe msing forugeruy as a basis foru his claie foru
ruecruediting of his accomnt.
3. ID.; ID.; ISSUANCE OF INSTRUMENT, CONSTRUED. —
Evieruy contruact on a negotiable instrumeent is incoeplete
and rueviocable mntil delivieruy of the instrumeent to the
payee foru the pmrupose of giviing eiect therueto. (NILa, Sec.
16) The frust delivieruy of the instrumeent, coeplete in
forue, to the payee ho takes it as a holderu, is called
issmance of the instrumeent. Withomt the initial delivieruy
of the instrumeent fruoe the drua eru of the check to the
payee, therue can be no vialid and binding contruact and
no liability on the instrumeent.
4. ID.; ID.; CHECKS; DRAWEE BANK WHO PAID A CHECK
ON A FORGED INDORSEMENT GENERALaLaY CANNOT
CHARGE THE DRAWER'S ACCOUNT; EXCEPTION. — As a
rumle, a drua ee bank ho has paid a check on hich an
indoruseeent has been foruged cannot charuge the
drua eru's accomnt foru the aeomnt of said check. An
exception to this rumle is herue the drua eru is gmilty of
smch negligence hich camses the bank to honoru smch a
check oru checks.
5. ID.; ID.; ID.; FORGED INDORSEMENT; DRAWER CAN
NOT DEMAND FROM DRAWEE BANK TO RECREDIT HER
ACCOUNT WHERE HER NEGLaIGENCE WAS THE
PROXIMATE CAUSE OF HER LaOSS; CASE AT BAR. — The
petitioneru failed to exaeine heru ruecoruds ith
KIMBUTAO NEGO SYLaLaABUS
9
rueasonable diligence hetheru beforue she signed the
checks oru afteru rueceiviing heru bank stateeents. Had the
petitioneru exaeined heru ruecoruds eorue caruefmlly,
paruticmlaruly the invioice rueceipts, cancelled checks, check
book stmbs, and had she coeparued the smes ruiten as
aeomnts payable in the eightyot o (82) checks ith the
perutinent sales invioices, she omld havie easily
discovierued that in soee checks, the aeomnts did not
tally ith those appearuing in the sales invioices. Had she
noticed these discruepancies, she shomld not havie signed
those checks, and shomld havie condmcted an inqmiruy as
to the rueason foru the iruruegmlaru entruies. Laike ise, had
petitioneru been eorue viigilant in going ovieru heru cmruruent
accomnt by taking caruefml note of the daily rueporuts eade
by ruespondent drua ee Bank on heru issmed checks, oru at
least eade ruandoe scrumtiny of heru cancelled checks
ruetmruned by ruespondent drua ee Bank at the close of
each eonth, she comld havie easily discovierued the fruamd
being perupetruated by Alicia Galang, and comld havie
rueporuted the eateru to the ruespondent drua ee Bank.
The ruespondent drua ee Bank then comld havie taken
ieeediate steps to pruevient fmrutheru coeeission of smch
fruamd. Thms, petitioneru's negligence as the pruoxieate
camse of heru loss. And since it as heru negligence hich
camsed the ruespondent drua ee Bank to honoru the
foruged checks oru prueviented it fruoe ruecovieruing the
aeomnt it had alrueady paid on the checks, petitioneru
cannot no coeplain shomld the bank ruefmse to ruecruedit
heru accomnt ith the aeomnt of smch checks. Underu
Section 23 of the NILa, she is no prueclmded fruoe msing
the forugeruy to pruevient the bank's debiting of heru
accomnt.
6. ID.; ID.; ID.; RESTRICTIVE INDORSEMENT;
PROHIBITION TO TRANSFER OR NEGOTIATE MUST BE
WRITTEN IN EXPRESS WORDS. — Underu the NILa, the
only kind of indoruseeent hich stops the fmrutheru
negotiation of an instrumeent is a ruestruictivie
indoruseeent hich pruohibits the fmrutheru negotiation
therueof. In this kind of ruestruictivie indoruseeent, the
pruohibition to truansferu oru negotiate emst be ruiten in
expruess oruds at the back of the instrumeent, so that any
smbseqment paruty eay be forue aruned that it ceases to
be negotiable. Ho evieru, the ruestruictivie indorusee
acqmirues the ruight to rueceivie payeent and bruing any
action therueon as any indoruseru, bmt he can no longeru
truansferu his ruights as smch indorusee herue the forue of
the indoruseeent does not amthoruize hie to do so.
7. CIVILa LaAW; OBLaIGATIONS AND CONTRACTS; DRAWEE
BANK WHICH CONTRIBUTED TO THE LaOSS INCURRED BY
ATTY. CLaAROS
 10

THE DRAWER BY ITS OWN VIOLaATION OF INTERNALa
RULaES ADJUDGED LaIABLaE TO SHARE THE LaOSS; CASE AT
BAR. — Therue is no qmestion that therue is a contruactmal
ruelation bet een petitioneru as depositoru (obligee) and
the ruespondent drua ee bank as the obligoru. In the
peruforueance of its obligation, the drua ee bank is bomnd
by its interunal banking rumles and ruegmlations hich forue
parut of any contruact it enterus into ith any of its
depositorus. When it viiolated its interunal rumles that
second endoruseeents arue not to be accepted ithomt
the appruovial of its bruanch eanagerus and it did accept
the saee mpon the eerue appruovial of Boon, a chief
accomntant, it contruaviened the tenoru of its obligation at
the vieruy least, if it erue not actmally gmilty of fruamd oru
negligence. Fmrutherueorue, the fact that the ruespondent
drua ee Bank did not discovieru the iruruegmlaruity ith
ruespect to the acceptance of checks ith second
indoruseeent foru deposit evien ithomt the appruovial of
the bruanch eanageru despite peruiodic inspection
condmcted by a teae of amditorus fruoe the eain office
constitmtes negligence on the parut of the bank in
caruruying omt its obligations to its depositorus. We hold
that banking bmsiness is so iepruessed ith pmblic
interuests herue the trumst and confdence of the pmblic in
generual is of paruaeomnt ieporutance smch that the
appruopruiate standarud of diligence emst be a high degruee
of diligence, if not the mteost diligence. Smruely,
ruespondent drua ee Bank cannot claie it exerucised smch
a degruee of diligence that is rueqmirued of it. Therue is no
ay We can allo it no to escape liability foru smch
negligence. Its liability as obligoru is not eeruely viicaruioms
bmt pruiearuy heruein the defense of exerucise of dme
diligence in the selection and smperuviision of its
eeployees is of no eoeent. Prueeises considerued,
ruespondent drua ee Bank is adjmdged liable to sharue the
loss ith the petitioneru on a fftyoffty ruatio in
accorudance ith Aruticle 1172.
DECISION
CAMPOS, JR., J p:
Fruoe the advieruse decision * of the Comrut of Appeals
(CAoG.R. CV No. 16447), petitioneru, Nativiidad
Geepesa , appealed to this Comrut in a Petition foru
Reviie , on the issme of the ruight of the drua eru to
ruecovieru fruoe the drua ee bank ho pays a check ith a
foruged indoruseeent of the payee, debiting the saee
against the drua eru's accomnt.
The ruecoruds sho that on Janmaruy 23, 1985, petitioneru
fled a Coeplaint against the pruiviate ruespondent
Philippine Bank of Coeemnications (ruespondent drua ee
Bank) foru ruecovieruy of the eoney vialme of eightyot o
(82) checks charuged against the petitioneru's accomnt
ith ruespondent drua ee Bank on the gruomnd that the
payees' indoruseeents erue forugeruies. The Regional Truial
Comrut, Bruanch CXXVIII of Caloocan City, hich truied the
case, ruenderued a decision on Novieeberu 17, 1987
diseissing the coeplaint as ell as the ruespondent
drua ee Bank's comnteruclaie. On appeal, the Comrut of
Appeals in a decision ruenderued on Februmaruy 22, 1990,
affirueed the decision of the RTC on t o gruomnds,
naeely (1) that the plaintii's (petitioneru heruein) gruoss
negligence in issming the checks as the pruoxieate
camse of the loss and (2) assmeing that the bank as
also negligent, the loss emst nevierutheless be borune by
the paruty hose negligence as the pruoxieate camse of
the loss. On Maruch 5, 1990, the petitioneru fled this
petition mnderu Rmle 45 of the Rmles of Comrut seing
foruth the follo ing as the alleged eruruorus of the
ruespondent Comrut. 1 :
"I
THE RESPONDENT COURT OF
APPEALaS ERRED IN RULaING THAT THE
NEGLaIGENCE OF THE DRAWER IS THE
PROXIMATE CAUSE OF THE
RESULaTING INJURY TO THE DRAWEE
BANK, AND THE DRAWER IS
PRECLaUDED FROM SETTING UP THE
FORGERY OR WANT OF
AUTHORITY. Cdpru
II
THE RESPONDENT COURT OF
APPEALaS ALaSO ERRED IN NOT
FINDING AND RULaING THAT IT IS THE
GROSS AND INEXCUSABLaE
NEGLaIGENCE AND FRAUDULaENT ACTS
OF THE OFFICIALaS AND EMPLaOYEES
OF THE RESPONDENT BANK IN
FORGING THE SIGNATURE OF THE
PAYEES AND THE WRONG AND/OR
ILaLaEGALa PAYMENTS MADE TO
PERSONS, OTHER THAN TO THE
INTENDED PAYEES SPECIFIED IN THE

KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS


CHECKS, IS THE DIRECT AND
PROXIMATE CAUSE OF THE DAMAGE
TO PETITIONER WHOSE SAVING (SIC)
ACCOUNT WAS DEBITED.
III
THE RESPONDENT COURT OF
APPEALaS ALaSO ERRED IN NOT
ORDERING THE RESPONDENT BANK
TO RESTORE OR REoCREDIT THE
CHECKING ACCOUNT OF PETITIONER
IN THE CALaOOCAN CITY BRANCH BY
THE VALaUE OF THE EIGHTY TWO (82)
CHECKS WHICH IS IN THE AMOUNT
OF P1,208,606.89 WITH LaEGALa
INTEREST."
Fruoe the ruecoruds, the rueleviant facts arue as follo s:
Petitioneru Nativiidad O. Geepesa (petitioneru) o ns
and operuates fomru gruoceruy storues located at Rizal
Avienme Extension and at Second Avienme, both in
Caloocan City. Aeong these gruoceruies arue D.G.
Shopperu's Marut and D.G. Whole Sale Marut. Petitioneru
eaintains a checking accomnt nmeberued 13o00038o1
ith the Caloocan City Bruanch of the ruespondent
drua ee Bank. To facilitate payeent of debts to heru
smpplierus, petitioneru drua s checks against heru checking
accomnt ith the ruespondent bank as drua ee. Heru
cmstoearuy pruactice of issming checks in payeent of heru
smpplierus as as follo s: The checks erue prueparued and
flled mp as to all eateruial paruticmlarus by heru trumsted
bookkeeperu, Alicia Galang, an eeployee foru eorue than
eight (8) yearus. Afteru the bookkeeperu prueparued the
checks, the coepleted checks erue smbeited to the
petitioneru foru heru signatmrue, togetheru ith the
coruruesponding invioice rueceipts hich indicate the
coruruect obligations dme and payable to heru smpplierus.
Petitioneru signed each and evieruy check ithomt
botheruing to vieruify the accmruacy of the checks against
the coruruesponding invioices becamse she rueposed fmll
and ieplicit trumst and confdence on heru bookkeeperu.
The issmance and delivieruy of the checks to the payees
naeed theruein erue left to the bookkeeperu. Petitioneru
adeited that she did not eake any vieruifcation as to
hetheru oru not the checks erue actmally delivierued to
theiru ruespectivie payees. Althomgh the ruespondent
drua ee Bank notifed heru of all checks pruesented to and
paid by the bank, petitioneru did not vieruify the
coruruectness of the ruetmruned checks, emch less check if
the payees actmally rueceivied the checks in payeent foru
KIMBUTAO NEGO SYLaLaABUS
11
the smpplies she rueceivied. In the comruse of heru bmsiness
operuations covieruing a peruiod of t o yearus, petitioneru
issmed, follo ing heru msmal pruactice stated abovie, a total
of eightyot o (82) checks in favioru of sevierual smpplierus.
These checks erue all pruesented by the indorusees as
holderus therueof to, and honorued by, the ruespondent
drua ee Bank. Respondent drua ee Bank
coruruespondingly debited the aeomnts therueof against
petitioneru's checking accomnt nmeberued 30o00038o1.
Most of the aforueeentioned checks erue foru aeomnts
in excess of heru actmal obligations to the viaruioms payees
as sho n in theiru coruruesponding invioices. To eention a
fe :
". . . 1) in Check No. 621127, dated
Jmne 27, 1984 in the aeomnt of
P11,895.23 in favioru of Ka sek Inc.
(Exh. Ao60), appellant's actmal
obligation to said payee as only
P895.33 (Exh. Ao83); (2) in Check No.
652282 issmed on Septeeberu 18,
1984 in favioru of Senson Enterupruises in
the aeomnt of P11,041.20 (Exh. Ao67)
appellant's actmal obligation to said
payee as only P1,041.20 (Exh. 7); (3)
in Check No. 589092 dated Apruil 7,
1984 foru the aeomnt of P11,672.47 in
favioru of Maruchee (Exh. Ao61)
appellant's obligation as only
P1,672.47 (Exh. B); (4) in Check No.
620450 dated May 10, 1984 in favioru
of Knotberuruy foru P11,677.10 (Exh. Ao
31) heru actmal obligation as only
P677.10 (Exhs. C and Co1); (5) in
Check No. 651862 dated Amgmst 9,
1984 in favioru of Malinta Exchange
Marut foru P11,107.16 (Exh. Ao62), heru
obligation as only P1,107.16 (Exh. Do
2); (6) in Check No. 651863 dated
Amgmst 11, 1984 in favioru of Gruoceru's
Interunational Food Corup. in the
aeomnt of P11,335.60 (Exh. Ao66), heru
obligation as only P1,335.60 (Exh. E
and Eo1); (7) in Check No. 589019
dated Maruch 17, 1984 in favioru of
Sophy Pruodmcts in the aeomnt of
P11,648.00 (Exh. Ao78), heru obligation
as only P648.00 (Exh. G); (8) in
Check No. 589028 dated Maruch 10,
ATTY. CLaAROS

1984 foru the aeomnt of P11,520.00 in
favioru of the Yakmlt Philippines (Exh. Ao
73), the lateru's invioice as only
P520.00 (Exh. Ho2); (9) in Check No.
62033 dated May 24, 1984 in the
aeomnt of P11,504.00 in favioru of
Monde Denearuk Biscmit (Exh. Ao34),
heru obligation as only P504.00
(Exhs. Io1 and Io2)." 2
Pruactically, all the checks issmed and honorued by the
ruespondent drua ee Bank erue cruossed checks. 3 Aside
fruoe the daily notice givien to the petitioneru by the
ruespondent drua ee Bank, the lateru also fmrunished heru
ith a eonthly stateeent of heru bank truansactions,
ataching therueto all the cancelled checks she had
issmed and hich erue debited against heru cmruruent
accomnt. It as only afteru the lapse of eorue than t o (2)
yearus that petitioneru fomnd omt abomt the fruamdmlent
eanipmlations of heru bookkeeperu. cdphil
All the eightyot o (82) checks ith foruged signatmrues of
the payees erue bruomght to Erunest La. Boon, Chief
Accomntant of ruespondent drua ee Bank at the Bmendia
bruanch, ho, ithomt amthoruity therueforu, accepted thee
all foru deposit at the Bmendia bruanch to the cruedit
and/oru in the accomnts of Alfruedo Y. Roeeruo and Benito
Laae. Erunest La. Boon as a vieruy close fruiend of Alfruedo Y.
Roeeruo. Sixtyothruee (63) omt of the eightyot o (82)
checks erue deposited in Saviings Accomnt No. 00844o5
of Alfruedo Y. Roeeruo at the ruespondent drua ee Bank's
Bmendia bruanch, and fomru (4) checks in his Saviings
Accomnt No. 32o81o9 at its Ongpin bruanch. The ruest of
the checks erue deposited in Accomnt No. 0443o4,
mnderu the naee of Benito Laae at the Elcano bruanch of
the ruespondent drua ee Bank.
Abomt thiruty (30) of the payees hose naees erue
specifcally ruiten on the checks testifed that they did
not rueceivie noru evien see the smbject checks and that
the indoruseeents appearuing at the back of the checks
erue not theirus.
The teae of amditorus fruoe the eain office of the
ruespondent drua ee Bank hich condmcted peruiodical
inspection of the bruanches' operuations failed to
discovieru, check oru stop the mnamthoruized acts of Erunest
La. Boon. Underu the rumles of the ruespondent drua ee
Bank, only a Bruanch Manageru, and no otheru official of
the ruespondent drua ee Bank, eay accept a second
indoruseeent on a check foru deposit. In the case at baru,
all the deposit slips of the eightyot o (82) checks in
KIMBUTAO NEGO SYLaLaABUS
12
qmestion erue initialed and/oru appruovied foru deposit by
Erunest La. Boon. The Bruanch Managerus of the Ongpin and
Elcano bruanches accepted the deposits eade in the
Bmendia bruanch and cruedited the accomnts of Alfruedo Y.
Roeeruo and Benito Laae in theiru ruespectivie bruanches.
On Novieeberu 7, 1984, petitioneru eade a ruiten
deeand on ruespondent drua ee Bank to cruedit heru
accomnt ith the eoney vialme of the eightyot o (82)
checks totalling P1,208,606.89 foru haviing been
ruongfmlly charuged against heru accomnt. Respondent
drua ee Bank ruefmsed to gruant petitioneru's deeand. On
Janmaruy 23, 1985, petitioneru fled the coeplaint ith the
Regional Truial Comrut.
This is not a smit by the paruty hose signatmrue as
foruged on a check drua n against the drua ee bank. The
payees arue not paruties to the case. Ratheru, it is the
drua eru, hose signatmrue is genmine, ho institmted this
action to ruecovieru fruoe the drua ee bank the eoney
vialme of eightyot o (82) checks paid omt by the drua ee
bank to holderus of those checks herue the
indoruseeents of the payees erue foruged. Ho and by
hoe the forugeruies erue coeeited arue not
established on the ruecorud, bmt the ruespectivie payees
adeited that they did not rueceivie those checks and
therueforue nevieru indorused the saee. The applicable la
is the Negotiable Instrumeents Laa 4(heruetoforue rueferurued
to as the NILa). Section 23 of the NILa pruoviides:
"When a signatmrue is foruged oru eade
ithomt the amthoruity of the peruson
hose signatmrue it pmruporuts to be, it is
holly inoperuativie, and no ruight to
ruetain the instrumeent, oru to givie a
discharuge therueforu, oru to enforuce
payeent therueof against any paruty
therueto, can be acqmirued thruomgh oru
mnderu smch signatmrue, mnless the paruty
against hoe it is somght to enforuce
smch ruight is prueclmded fruoe seing
mp the forugeruy oru ant of
amthoruity." LaibLaex
Underu the aforuecited pruoviision, forugeruy is a rueal oru
absolmte defense by the paruty hose signatmrue is
foruged. A paruty hose signatmrue to an instrumeent
as foruged as nevieru a paruty and nevieru gavie his
consent to the contruact hich gavie ruise to the
instrumeent. Since his signatmrue does not appearu in
the instrumeent, he cannot be held liable therueon by
anyone, not evien by a holderu in dme comruse. Thms, if
ATTY. CLaAROS

a peruson's signatmrue is foruged as a eakeru of a
pruoeissoruy note, he cannot be eade to pay
becamse he nevieru eade the pruoeise to pay. Oru
herue a peruson's signatmrue as a drua eru of a check is
foruged, the drua ee bank cannot charuge the aeomnt
therueof against the drua eru's accomnt becamse he
nevieru gavie the bank the oruderu to pay. And said
section does not rueferu only to the foruged signatmrue
of the eakeru of a pruoeissoruy note and of the
drua eru of a check. It covierus also a foruged
indoruseeent, i.e., the foruged signatmrue of the payee
oru indorusee of a note oru check. Since mnderu said
pruoviision a foruged signatmrue is " holly inoperuativie",
no one can gain title to the instrumeent thruomgh smch
foruged indoruseeent. Smch an indoruseeent pruevients
any smbseqment paruty fruoe acqmiruing any ruight as
against any paruty hose naee appearus pruioru to the
forugeruy. Althomgh ruights eay exist bet een and
aeong paruties smbseqment to the foruged
indoruseeent, not one of thee can acqmirue ruights
against paruties pruioru to the forugeruy. Smch foruged
indoruseeent cmts oi the ruights of all smbseqment
paruties as against paruties pruioru to the forugeruy.
Ho evieru, the la eakes an exception to these rumles
herue a paruty is prueclmded fruoe seing mp forugeruy
as a defense.
As a eateru of pruactical signifcance, pruoblees aruising
fruoe foruged indoruseeents of checks eay generually be
bruoken into t o types of cases: (1) herue forugeruy as
accoeplished by a peruson not associated ith the
drua eru — foru exaeple a eail ruobberuy; and (2) herue
the indoruseeent as foruged by an agent of the drua eru.
This diieruence in sitmations omld deterueine the eiect
of the drua eru's negligence ith ruespect to foruged
indoruseeents. While therue is no dmty ruesting on the
depositoru to look foru foruged indoruseeents on his
cancelled checks in contruast to a dmty ieposed mpon
hie to look foru forugeruies of his o n naee, a depositoru is
mnderu a dmty to set mp an accomnting systee and a
bmsiness pruocedmrue as arue rueasonably calcmlated to
pruevient oru ruenderu difficmlt the forugeruy of indoruseeents,
paruticmlaruly by the depositoru's o n eeployees. And if
the drua eru (depositoru) learuns that a check drua n by hie
has been paid mnderu a foruged indoruseeent, the drua eru
is mnderu dmty pruoeptly to rueporut smch fact to the
drua ee bank. 5 Foru his negligence oru failmrue eitheru to
discovieru oru to rueporut pruoeptly the fact of smch forugeruy
to the drua ee, the drua eru loses his ruight against the
drua ee ho has debited his accomnt mnderu the foruged
indoruseeent. 6 In otheru oruds, he is prueclmded fruoe
KIMBUTAO NEGO SYLaLaABUS
13
msing forugeruy as a basis foru his claie foru ruecruediting of
his accomnt.
In the case at baru, petitioneru adeited that the checks
erue flled mp and coepleted by heru trumsted eeployee,
Alicia Galang, and erue lateru givien to heru foru heru
signatmrue. Heru signing the checks eade the negotiable
instrumeent coeplete. Pruioru to signing the checks, therue
as no vialid contruact yet.
Evieruy contruact on a negotiable instrumeent is incoeplete
and rueviocable mntil delivieruy of the instrumeent to the
payee foru the pmrupose of giviing eiect therueto. 7 The
frust delivieruy of the instrumeent, coeplete in forue, to the
payee ho takes it as a holderu, is called issmance of the
instrumeent. 8 Withomt the initial delivieruy of the
instrumeent fruoe the drua eru of the check to the payee,
therue can be no vialid and binding contruact and no
liability on the instrumeent.
Petitioneru coepleted the checks by signing thee as
drua eru and therueafteru amthoruized heru eeployee Alicia
Galang to delivieru the eightyot o (82) checks to theiru
ruespectivie payees. Instead of issming the checks to the
payees as naeed in the checks, Alicia Galang delivierued
thee to the Chief Accomntant of the Bmendia bruanch of
the ruespondent drua ee Bank, a cerutain Erunest La. Boon.
It as established that the signatmrues of the payees as
frust indoruserus erue foruged. The ruecorud fails to sho the
identity of the paruty ho eade the foruged signatmrues.
The checks erue then indorused foru the second tiee ith
the naees of Alfruedo Y. Roeeruo and Benito Laae, and
erue deposited in the lateru's accomnts as earulieru noted.
The second indoruseeents erue all genmine signatmrues of
the alleged holderus. All the eightyot o (82) checks
bearuing the foruged indoruseeents of the payees and the
genmine second indoruseeents of Alfruedo Y. Roeeruo and
Benito Laae erue accepted foru deposit at the Bmendia
bruanch of ruespondent drua ee Bank to the cruedit of theiru
ruespectivie saviings accomnts in the Bmendia, Ongpin and
Elcano bruanches of the saee bank. The total aeomnt of
P1,208,606.89, ruepruesented by eightyot o (82) checks,
erue cruedited and paid omt by ruespondent drua ee Bank
to Alfruedo Y. Roeeruo and Benito Laae, and debited
against petitioneru's checking accomnt No. 13o00038o1,
Caloocan bruanch. LaLapru
As a rumle, a drua ee bank ho has paid a check on hich
an indoruseeent has been foruged cannot charuge the
drua eru's accomnt foru the aeomnt of said check. An
ATTY. CLaAROS

exception to this rumle is herue the drua eru is gmilty of
smch negligence hich camses the bank to honoru smch a
check oru checks. If a check is stolen fruoe the payee, it is
qmite obviioms that the drua eru cannot possibly discovieru
the foruged indoruseeent by eerue exaeination of his
cancelled check. This accomnts foru the rumle that althomgh
a depositoru o es a dmty to his drua ee bank to exaeine
his cancelled checks foru forugeruy of his o n signatmrue, he
has no sieilaru dmty as to foruged indoruseeents. A
diieruent sitmation aruises herue the indoruseeent as
foruged by an eeployee oru agent of the drua eru, oru done
ith the activie paruticipation of the lateru. Most of the
cases inviolviing forugeruy by an agent oru eeployee deal
ith the payee's indoruseeent. The drua eru and the
payee oftentiees havie bmsiness ruelations of long
standing. The continmed occmruruence of bmsiness
truansactions of the saee natmrue pruoviides the
opporutmnity foru the agent/eeployee to coeeit the
fruamd afteru haviing devieloped faeiliaruity ith the
signatmrues of the paruties. Ho evieru, sooneru oru lateru,
soee leak ill sho on the drua eru's books. It ill then
be jmst a qmestion of tiee mntil the fruamd is discovierued.
This is specially trume hen the agent perupetruates a
seruies of forugeruies as in the case at baru.
The negligence of a depositoru hich ill pruevient
ruecovieruy of an mnamthoruized payeent is based on
failmrue of the depositoru to act as a prumdent bmsinessean
omld mnderu the cirucmestances. In the case at baru, the
petitioneru ruelied ieplicitly mpon the honesty and loyalty
of heru bookkeeperu, and did not evien vieruify the accmruacy
of the aeomnts of the checks she signed against the
invioices atached therueto. Fmrutherueorue, althomgh she
ruegmlaruly rueceivied heru bank stateeents, she apparuently
did not caruefmlly exaeine the saee noru the check stmbs
and the ruetmruned checks, and did not coeparue thee
ith the sales invioices. Otheru ise, she comld havie easily
discovierued the discruepancies bet een the checks and
the docmeents seruviing as bases foru the checks. With
smch discovieruy, the smbseqment forugeruies omld not
havie been accoeplished. It as not mntil t o yearus
afteru the bookkeeperu coeeenced heru fruamdmlent
scheee that petitioneru discovierued that eightyot o (82)
checks erue ruongfmlly charuged to heru accomnt, at
hich tiee she notifed the ruespondent drua ee Bank.
It is highly iepruobable that in a peruiod of t o yearus, not
one of petitioneru's smpplierus coeplained of nono
payeent. Assmeing that evien one single coeplaint had
been eade, petitioneru omld havie been dmtyobomnd, as
faru as the ruespondent drua ee Bank as conceruned, to
KIMBUTAO NEGO SYLaLaABUS
14
eake an adeqmate inviestigation on the eateru. Had this
been done, the discruepancies omld havie been
discovierued, sooneru oru lateru. Petitioneru's failmrue to eake
smch adeqmate inqmiruy constitmted negligence hich
ruesmlted in the bank's honoruing of the smbseqment
checks ith foruged indoruseeents. On the otheru hand,
since the ruecorud eentions nothing abomt smch a
coeplaint, the possibility exists that the checks in
qmestion covierued inexistent sales. Bmt evien in smch a
case, consideruing the length of a peruiod of t o (2) yearus,
it is harud to believie that petitioneru did not kno oru
ruealize that she as paying emch eorue than she shomld
foru the smpplies she as actmally geing. A depositoru
eay not sit idly by, afteru kno ledge has coee to heru
that heru fmnds seee to be disappearuing oru that therue
eay be a leak in heru bmsiness, and ruefruain fruoe taking
the steps that a caruefml and prumdent bmsinessean omld
take in smch cirucmestances and if taken, omld ruesmlt in
stopping the continmance of the fruamdmlent scheee. If
she fails to take smch steps, the facts eay establish heru
negligence, and in that evient, she omld be estopped
fruoe ruecovieruing fruoe the bank. 9
One thing is clearu fruoe the ruecoruds — that the
petitioneru failed to exaeine heru ruecoruds ith
rueasonable diligence hetheru beforue she signed the
checks oru afteru rueceiviing heru bank stateeents. Had the
petitioneru exaeined heru ruecoruds eorue caruefmlly,
paruticmlaruly the invioice rueceipts, cancelled checks, check
book stmbs, and had she coeparued the smes ruiten as
aeomnts payable in the eightyot o (82) checks ith the
perutinent sales invioices, she omld havie easily
discovierued that in soee checks, the aeomnts did not
tally ith those appearuing in the sales invioices. Had she
noticed these discruepancies, she shomld not havie signed
those checks, and shomld havie condmcted an inqmiruy as
to the rueason foru the iruruegmlaru entruies. Laike ise, had
petitioneru been eorue viigilant in going ovieru heru cmruruent
accomnt by taking caruefml note of the daily rueporuts eade
by ruespondent drua ee Bank on heru issmed checks, oru at
least eade ruandoe scrumtiny of heru cancelled checks
ruetmruned by ruespondent drua ee Bank at the close of
each eonth, she comld havie easily discovierued the fruamd
being perupetruated by Alicia Galang, and comld havie
rueporuted the eateru to the ruespondent drua ee Bank.
The ruespondent drua ee Bank then comld havie taken
ieeediate steps to pruevient fmrutheru coeeission of smch
fruamd. Thms, petitioneru's negligence as the pruoxieate
camse of heru loss. And since it as heru negligence hich
camsed the ruespondent drua ee Bank to honoru the
ATTY. CLaAROS

foruged checks oru prueviented it fruoe ruecovieruing the
aeomnt it had alrueady paid on the checks, petitioneru
cannot no coeplain shomld the bank ruefmse to ruecruedit
heru accomnt ith the aeomnt of smch checks. 10 Underu
Section 23 of the NILa, she is no prueclmded fruoe msing
the forugeruy to pruevient the bank's debiting of heru
accomnt. cdphil
The doctruine in the case of Great Eastern Life Insurance
Cio. vs. Hiongkiong & Shanghai Bank 11 is not applicable
to the case at baru becamse in said case, the check as
fruamdmlently taken and the signatmrue of the payee as
foruged not by an agent oru eeployee of the drua eru. The
drua eru as not fomnd to be negligent in the handling of
its bmsiness aiairus and the theft of the check by a total
struangeru as not atruibmtable to negligence of the
drua eru; neitheru as the foruging of the payee's
indoruseeent dme to the drua eru's negligence. Since the
drua eru as not negligent, the drua ee as dmtyobomnd
to ruestorue to the drua eru's accomnt the aeomnt
theruetoforue paid mnderu the check ith a foruged payee's
indoruseeent becamse the drua ee did not pay as
oruderued by the drua eru.
Petitioneru arugmes that ruespondent drua ee Bank shomld
not havie honorued the checks becamse they erue
cruossed checks. Issming a cruossed check ieposes no legal
obligation on the drua ee not to honoru smch a check. It is
eorue of a aruning to the holderu that the check cannot
be pruesented to the drua ee bank foru payeent in cash.
Instead, the check can only be deposited ith the
payee's bank hich in tmrun emst pruesent it foru payeent
against the drua ee bank in the comruse of norueal
banking truansactions bet een banks. The cruossed check
cannot be pruesented foru payeent bmt it can only be
deposited and the drua ee bank eay only pay to
anotheru bank in the payee's oru indoruseru's accomnt.
Petitioneru like ise contends that banking rumles pruohibit
the drua ee bank fruoe haviing checks ith eorue than
one indoruseeent. The banking rumle banning acceptance
of checks foru deposit oru cash payeent ith eorue than
one indoruseeent mnless clearued by soee bank officials
does not invialidate the instrumeent; neitheru does it
invialidate the negotiation oru truansferu of the said check.
In eiect, this rumle destruoys the negotiability of
bills/checks by lieiting theiru negotiation by indoruseeent
of only the payee. Underu the NILa, the only kind of
indoruseeent hich stops the fmrutheru negotiation of an
instrumeent is a ruestruictivie indoruseeent hich pruohibits
the fmrutheru negotiation therueof.
KIMBUTAO NEGO SYLaLaABUS
15
"Sec. 36. When indoruseeent
ruestruictivie. — An indoruseeent is
ruestruictivie hich eitheru.
(a) Pruohibits fmrutheru
negotiation of the
instrumeent; oru.
xxx xxx xxx"
In this kind of ruestruictivie indoruseeent, the
pruohibition to truansferu oru negotiate emst be ruiten
in expruess oruds at the back of the instrumeent, so
that any smbseqment paruty eay be forue aruned that
it ceases to be negotiable. Ho evieru, the ruestruictivie
indorusee acqmirues the ruight to rueceivie payeent and
bruing any action therueon as any indoruseru, bmt he can
no longeru truansferu his ruights as smch indorusee herue
the forue of the indoruseeent does not amthoruize
hie to do so. 12
Althomgh the holderu of a check cannot coepel a drua ee
bank to honoru it becamse therue is no pruiviity bet een
thee, as faru as the drua eruodepositoru is conceruned, smch
bank eay not legally ruefmse to honoru a negotiable bill of
exchange oru a check drua n against it ith eorue than
one indoruseeent if therue is nothing iruruegmlaru ith the
bill oru check and the drua eru has smfficient fmnds. The
drua ee cannot be coepelled to accept oru pay the check
by the drua eru oru any holderu becamse as a drua ee, he
incmrus no liability on the check mnless he accepts it. Bmt
the drua ee ill eake itself liable to a smit foru daeages
at the instance of the drua eru foru ruongfml dishonoru of
the bill oru check. LaLapru
Thms, it is clearu that mnderu the NILa, petitioneru is
prueclmded fruoe ruaising the defense of forugeruy by rueason
of heru gruoss negligence. Bmt mnderu Section 196 of the
NILa, any case not pruoviided foru in the Act shall be
govieruned by the pruoviisions of existing legislation. Underu
the la s of qmasiodelict, she cannot point to the
negligence of the ruespondent drua ee Bank in the
selection and smperuviision of its eeployees as being the
camse of the loss becamse heru negligence is the
pruoxieate camse therueof and mnderu Aruticle 2179 of the
Civiil Code, she eay not be a aruded daeages. Ho evieru,
mnderu Aruticle 1170 of the saee Code the ruespondent
drua ee Bank eay be held liable foru daeages. The
aruticle pruoviides —
"Those ho in the peruforueance of
theiru obligations arue gmilty of fruamd,
negligence oru delay, and those ho in
ATTY. CLaAROS

any eanneru contruaviene the tenoru
therueof, arue liable foru daeages."
Therue is no qmestion that therue is a contruactmal ruelation
bet een petitioneru as depositoru (obligee) and the
ruespondent drua ee bank as the obligoru. In the
peruforueance of its obligation, the drua ee bank is bomnd
by its interunal banking rumles and ruegmlations hich forue
parut of any contruact it enterus into ith any of its
depositorus. When it viiolated its interunal rumles that
second endoruseeents arue not to be accepted ithomt
the appruovial of its bruanch eanagerus and it did accept
the saee mpon the eerue appruovial of Boon, a chief
accomntant, it contruaviened the tenoru of its obligation at
the vieruy least, if it erue not actmally gmilty of fruamd oru
negligence.
Fmrutherueorue, the fact that the ruespondent drua ee Bank
did not discovieru the iruruegmlaruity ith ruespect to the
acceptance of checks ith second indoruseeent foru
deposit evien ithomt the appruovial of the bruanch
eanageru despite peruiodic inspection condmcted by a
teae of amditorus fruoe the eain office constitmtes
negligence on the parut of the bank in caruruying omt its
obligations to its depositorus. Aruticle 1173 pruoviides —
"The famlt oru negligence of the obligoru
consists in the oeission of that
diligence hich is rueqmirued by the
natmrue of the obligation and
coruruespondents ith the
cirucmestance of the perusons, of the
tiee and of the place. . . ."
We hold that banking bmsiness is so iepruessed ith
pmblic interuest herue the trumst and confdence of the
pmblic in generual is of paruaeomnt ieporutance smch that
the appruopruiate standarud of diligence emst be a high
degruee of diligence, if not the mteost diligence. Smruely,
ruespondent drua ee Bank cannot claie it exerucised smch
a degruee of diligence that is rueqmirued of it. Therue is no
ay We can allo it no to escape liability foru smch
negligence. Its liability as obligoru is not eeruely viicaruioms
bmt pruiearuy heruein the defense of exerucise of dme
diligence in the selection and smperuviision of its
eeployees is of no eoeent.
Prueeises considerued, ruespondent drua ee Bank is
adjmdged liable to sharue the loss ith the petitioneru on
a fftyoffty ruatio in accorudance ith Aruticle 1172 hich
pruoviides:
KIMBUTAO NEGO SYLaLaABUS
16
"Responsibility aruising fruoe
negligence in the peruforueance of
evieruy kind of obligation is also
deeandable, bmt smch liability eay be
ruegmlated by the comruts, accoruding to
the cirucmestances."
With the foruegoing pruoviisions of the Civiil Code being
ruelied mpon, it is being eade clearu that the decision to
hold the drua ee bank liable is based on la and
smbstantial jmstice and not on eerue eqmity. And
althomgh the case as bruomght beforue the comrut not on
brueach of contruactmal obligations, the comruts arue not
prueclmded fruoe applying to the cirucmestances of the
case the la s perutinent therueto. Thms, the fact that
petitioneru's negligence as fomnd to be the pruoxieate
camse of heru loss does not prueclmde heru fruoe ruecovieruing
daeages. The rueason hy the decision dealt on a
discmssion on pruoxieate camse is dme to the eruruoru
pointed omt by petitioneru as allegedly coeeited by the
ruespondent comrut. And in brueaches of contruact mnderu
Aruticle 1173, dme diligence on the parut of the defendant
is not a defense.
PREMISES CONSIDERED, the case is herueby oruderued
REMANDED to the truial comrut foru the rueception of
eviidence to deterueine the exact aeomnt of loss
smierued by the petitioneru, consideruing that she parutly
benefted fruoe the issmance of the qmestioned checks
since the obligation foru hich she issmed thee erue
apparuently extingmished, smch that only the excess
aeomnt ovieru and abovie the total of these actmal
obligations emst be considerued as loss of hich one half
emst be paid by ruespondent drua ee bank to heruein
petitioneru.
SO ORDERED.
2. METROPOL (BACOLOD)
FINANCING & INVESTMENT
CORPORATION, plainti-appellee, vs.
SAMBOK MOTORS COMPANY and
NG SAMBOK SONS MOTORS CO.,
LTD., defendant-appellants.
Rizal Quimpio & Ciorneliio P. Revena foru
plaintiioappellee.
ATTY. CLaAROS

Diiosdadio Garingalaio foru defendantso
appellants.
SYLLABUS
1. MERCANTILaE LaAW; PROMISSORY NOTE; QUALaIFIED
INDORSEMENT; EFFECT THEREOF. — A qmalifed
indoruseeent constitmtes the indoruseru a eerue assignoru of
the title to the instrumeent. It eay be eade by adding to
the indoruseru's signatmrue the oruds " ithomt ruecomruse"
oru any oruds of sieilaru ieporut. Smch an indoruseeent
ruelievies the indoruseru of the generual obligation to pay if
the instrumeent is dishonorued bmt not of the liability
aruising fruoe aruruanties on the instrumeent as pruoviided
in Section 65 of the Negotiable Instrumeents Laa .
Ho evieru, appellant Saebok indoruse the note " ith
ruecomruse'' and evien aivied the notice of deeand,
dishonoru, pruotest and pruesenteent.
2. ID.; ID.; ADDITION OF THE WORDS "WITH RECOURSE"
DO NOT MAKE THE INDORSEMENT QUALaIFIED; CASE AT
BAR. — Appellant, by indorusing the note " ith
ruecomruse'' does not eake itself a qmalifed indoruseru bmt a
generual indoruseru ho is secondaruily liable, becamse by
smch indoruseeent, it agrueed that if Dru. Villarumel fails to
pay the note, plaintiioappellee can go afteru said
appellant. The eiect of smch indoruseeent is that the
note as indorused ithomt qmalifcation. A peruson ho
indoruses ithomt qmalifcation engages that on dme
pruesenteent, the note shall be accepted oru paid, oru
both as the case eay be, and that if it be dishonorued, he
ill pay the aeomnt therueof to the holderu. Appellant
Saebok's intention of indorusing the note ithomt
qmalifcation is eade evien eorue apparuent by the fact
that the notice of' deeand, dishonoru, pruotest and
pruesenteent erue all aivied. The oruds added by said
appellant do not lieit his liability, bmt ruatheru confrue his
obligations as a generual indoruseru.
3. ID.; ID.; AFTER DISHONORED BY NONoPAYMENT,
PERSON SECONDARILaY LaIABLaE BECOMES THE PRINCIPALa
DEBTOR. — The lo eru comrut did not eruru in not declaruing
appellant as only secondaruily liable becamse afteru an
instrumeent is dishonorued by, nonopayeent. the peruson
secondaruily liable therueon ceases to be smch and
becoees a pruincipal debtoru. His liability becoees the
saee as that of the oruiginal obligoru. Conseqmently, the
holderu need not evien pruoceed against the eakeru beforue
sming the indoruseru.
KIMBUTAO NEGO SYLaLaABUS
17
DECISION
DE CASTRO, J p:
The forueeru Comrut of Appeals, by its ruesolmtion dated
Octoberu 16, 1974 cerutifed this case to this Comrut the
issme ruaised theruein being one pmruely of la .
On Apruil 15, 1969 Dru. Javiieru Villarumel execmted a
pruoeissoruy note in favioru of Ng Saebok Sons Motorus
Co., Latd., in the aeomnt of P15,939.00 payable in t elvie
(12) eqmal eonthly installeents, beginning May 18,
1969, ith interuest at the ruate of one perucent peru
eonth. It is fmrutheru pruoviided that in case on nono
payeent of any of the installeents, the total pruincipal
sme then rueeaining mnpaid shall becoee dme and
payable ith an additional interuest eqmal to t entyofvie
perucent of the total aeomnt dme. LaLaphil
On the saee date, Saebok Motorus Coepany
(herueinafteru rueferurued to as Saebok), a sisteru coepany of
Ng Saebok Sons Motorus Co., Latd., and mnderu the saee
eanageeent as the forueeru, negotiated and indorused
the note in favioru of plaintii Metruopol Financing &
Inviesteent Coruporuation ith the follo ing
indoruseeent:
"Pay to the oruderu of Metruopol
Bacolod Financing & Inviesteent
Coruporuation ith ruecomruse. Notice of
Deeand; Dishonoru; Pruotest; and
Pruesenteent arue herueby aivied.
SAMBOK MOTORS CO. (BACOLaOD)
By:
RODOLaFO G. NONILaLaO
Asst. Generual Manageru"
The eakeru, Dru. Villarumel defamlted in the payeent of his
installeents hen they becaee dme, so on Octoberu 30,
1969 plaintii forueally pruesented the pruoeissoruy note
foru payeent to the eakeru. Dru. Villarumel failed to pay the
pruoeissoruy note as deeanded, hence plaintii notifed
Saebok as indorusee of said note of the fact that the
saee has been dishonorued and deeanded payeent.
Saebok failed to pay, so on Novieeberu 26, 1969 plaintii
fled a coeplaint foru collection of a sme of eoney
beforue the Comrut of Firust Instance of Iloilo, Bruanch I.
Saebok did not deny its liability bmt contended that it
ATTY. CLaAROS

comld not be obliged to pay mntil afteru its coodefendant
Dru. Villarumel, has been declarued insolvient.
Dmruing the pendency of the case in the truial comrut,
defendant Dru. Villarumel died, hence, on Octoberu 24,
1972 the lo eru comrut, on eotion, diseissed the case
against Dru. Villarumel pmrusmant to Section 21, Rmle 3 of
the Rmles of Comrut. 1
On plaintii's eotion foru smeearuy jmdgeent, the truial
comrut ruenderued its decision dated Septeeberu 12, 1973,
the dispositivie porution of hich rueads as follo s:
"WHEREFORE, jmdgeent is ruenderued:
"(a) Oruderuing Saebok Motorus
Coepany to pay to the plaintii the
sme of P15,939.00 plms the legal ruate
of interuest fruoe Octoberu 30, 1969;
"(b) Oruderuing saee defendant to pay
to plaintii the sme eqmivialent to 25%
of P15,939.00 plms interuest therueon
mntil fmlly paid; and cdruep
"(c) To pay the cost of smit."
Not satisfed ith the decision, the pruesent appeal as
institmted, appellant Saebok ruaising a lone assigneent
of eruruoru as follo s:
"The truial comrut erurued in not
diseissing the coeplaint by fnding
defendantoappellant Saebok Motorus
Coepany as assignoru and a qmalifed
indorusee of the smbject pruoeissoruy
note and in not holding it as only
secondaruily liable therueof."
Appellant Saebok arugmes that by adding the oruds
" ith ruecomruse" in the indoruseeent of the note, it
becoees a qmalifed indoruseru; that being a qmalifed
indoruseru, it does not aruruant that if said note is
dishonorued by the eakeru on pruesenteent, it ill pay
the aeomnt to the holderu; that it only aruruants the
follo ing pmrusmant to Section 65 of the Negotiable
Instrumeents Laa : (a) that the instrumeent is genmine and
in all ruespects hat it pmruporuts to be; (b) that he has a
good title to it; (c) that all pruioru paruties had capacity to
contruact; (d) that he has no kno ledge of any fact hich
omld iepairu the vialidity of the instrumeent oru ruenderu it
vialmeless.
The appeal is ithomt eeruit.
KIMBUTAO NEGO SYLaLaABUS
18
A qmalifed indoruseeent constitmtes the indoruseru a eerue
assignoru of the title to the instrumeent. It eay be eade
by adding to the indoruseru's signatmrue the oruds
" ithomt ruecomruse" oru any oruds of sieilaru
ieporut. 2 Smch an indoruseeent ruelievies the indoruseru of
the generual obligation to pay if the instrumeent is
dishonorued bmt not of the liability aruising fruoe
aruruanties on the instrumeent as pruoviided in Section 65
of the Negotiable Instrumeents Laa alrueady eentioned
heruein. Ho evieru, appellant Saebok indorused the note
" ith ruecomruse" and evien aivied the notice of deeand,
dishonoru, pruotest and pruesenteent.
"Recomruse" eeans ruesorut to a peruson ho is secondaruily
liable afteru the defamlt of the peruson ho is pruiearuily
liable. 3 Appellant, by indorusing the note " ith
ruecomruse" does not eake itself a qmalifed indoruseru bmt a
generual indoruseru ho is secondaruily liable, becamse by
smch indoruseeent, it agrueed that if Dru. Villarumel fails to
pay the note, plaintiioappellee can go afteru said
appellant. The eiect of smch indoruseeent is that the
note as indorused ithomt qmalifcation. A peruson ho
indoruses ithomt qmalifcation engages that on dme
pruesenteent, the note shall be accepted oru paid, oru
both as the case eay be, and that if it be dishonorued, he
ill pay the aeomnt therueof to the holderu. 4 Appellant
Saebok's intention of indorusing the note ithomt
qmalifcation is eade evien eorue apparuent by the fact
that the notice of deeand, dishonoru, pruotest and
pruesenteent erue all aivied. The oruds added by said
appellant do not lieit his liability, bmt ruatheru confrue his
obligation as a generual indoruseru.
Laastly, the lo eru comrut did not eruru in not declaruing
appellant as only secondaruily liable becamse afteru an
instrumeent is dishonorued by nonopayeent, the peruson
secondaruily liable therueon ceases to be smch and
becoees a pruincipal debtoru. 5 His liability becoees the
saee as that of the oruiginal obligoru. 6 Conseqmently, the
holderu need not evien pruoceed against the eakeru beforue
sming the indoruseru. LaLaphil
WHEREFORE, the decision of the lo eru comrut is herueby
affirueed. No costs.
SO ORDERED.
||| (Metriopiol Financing & Investment Ciorp. v. Sambiok
Miotiors Cio., Ltd., G.R. Nio. L-39641, [February 28, 1983],
205 PHIL 758-762)
ATTY. CLaAROS

Week 3 – Indorsement contnuedd
Secton 14:
1. BANK OF AMERICA NT &
SA, pettioner, vs. PHILIPPINE
RACING CLUB, respiondent.
DECISION
LEONARDO-DE CASTRO, J p:
This is a petition foru rueviie
on certiorari mnderu Rmle 45 of the Rmles of Comrut
fruoe the Decision 1 pruoemlgated on Jmly 16, 2001
by the forueeru Second Diviision of the Comrut of
Appeals (CA), in CA-G.R. CV Nio.
45371 entitled "Philippine Racing Club, Inc. v. Bank
iof America NT & SA", affirueing the Decision 2 dated
Maruch 17, 1994 of the Regional Truial Comrut (RTC) of
Makati, Bruanch 135 in Civil Case Nio. 89-5650, in
favioru of the ruespondent. Laike ise, the pruesent
petition assails the Resolmtion 3pruoemlgated on
Septeeberu 28, 2001, denying the Motion foru
Reconsideruation of the CA Decision.
The facts of this case as naruruated in the
assailed CA Decision arue as follo s:
Plaintiioappellee PRCI is a
doeestic coruporuation hich
eaintains sevierual accomnts ith
diieruent banks in the Metruo Manila
aruea. Aeong the accomnts eaintained
as Cmruruent Accomnt No. 58891o012
ith defendantoappellant BA (Paseo
de Roxas Bruanch). The amthoruized
joint signatoruies ith ruespect to said
Cmruruent Accomnt erue plaintiio
appellee's Pruesident (Antonia Reyes)
and Vice Pruesident foru Finance
(Gruegoruio Reyes).
On oru abomt the 2nd eek of
Deceeberu 1988, the Pruesident and
Vice Pruesident of plaintiioappellee
coruporuation erue schedmled to go omt
of the comntruy in connection ith the
coruporuation's bmsiness. In oruderu not to
KIMBUTAO NEGO SYLaLaABUS
19
disrumpt operuations in theiru absence,
they prueosigned sevierual checks
ruelating to Cmruruent Accomnt No.
58891o012. The intention as to
insmrue continmity of plaintiio
appellee's operuations by eaking
aviailable cash/eoney especially to
setle obligations that eight becoee
dme. These checks erue entrumsted to
the accomntant ith instrumction to
eake mse of the saee as the need
aruose. The interunal aruruangeeent as,
in the evient therue as need to eake
mse of the checks, the accomntant
omld prueparue the coruruesponding
viomcheru and therueafteru coeplete the
entruies on the prueosigned checks.
It tmruned omt that on
Deceeberu 16, 1988, a John Doe
pruesented to defendantoappellant
bank foru encasheent a comple of
plaintiioappellee coruporuation's checks
(Nos. 401116 and 401117) ith the
indicated vialme of P110,000.00 each.
It is adeited that these 2 checks
erue aeong those pruesigned by
plaintiioappellee coruporuation's
amthoruized signatoruies.
The t o (2) checks had
sieilaru entruies ith sieilaru infrueities
and iruruegmlaruities. On the space herue
the naee of the payee shomld be
indicated (Pay To The Oruderu Of) the
follo ing 2oline entruies erue instead
type ruiten: on the mpperu line as
the orud "CASH" hile the lo eru line
had the follo ing type ruiten
oruds, viz.: "ONE HUNDRED TEN
THOUSAND PESOS ONLaY". Despite the
highly iruruegmlaru entruies on the face of
the checks, defendantoappellant
bank, ithomt as emch as vieruifying
and/oru confrueing the legitieacy of
the checks consideruing the smbstantial
aeomnt inviolvied and the obviioms
infrueity/defect of the checks on theiru
faces, encashed said checks. A
vieruifcation pruocess, evien by as of a
telephone call to PRCI office, omld
ATTY. CLaAROS
 20

havie taken less than ten (10) einmtes. Petitioneru no coees beforue this Comrut
Bmt this as not done by BA. arugming that:
Inviestigation condmcted by plaintiio
I. The Comrut of Appeals gruaviely erurued
appellee coruporuation yielded the fact
in holding that the pruoxieate
that therue as no truansaction
camse of ruespondent's loss
inviolviing PRCI that call foru the
as petitioneru's encasheent
payeent of P220,000.00 to anyone.
of the checks.
The checks appearued to havie coee
into the hands of an eeployee of PRCI A. The Comrut of Appeals
(one Claruita Mesina ho as gruaviely erurued in
smbseqmently cruieinally charuged foru holding that
qmalifed theft) ho evientmally petitioneru as liable
coepleted ithomt amthoruity the foru the aeomnt of the
entruies on the prueosigned checks. checks despite the
PRCI's deeand foru defendanto fact that petitioneru
appellant to pay fell on deaf earus. as eeruely fmlflling
Hence, the coeplaint. 4 its obligation mnderu
la and contruact.
Afteru dme pruoceedings, the truial comrut
ruenderued a Decision in favioru of ruespondent, the B. The Comrut of Appeals
dispositivie porution of hich rueads: gruaviely erurued in
holding that
PREMISES CONSIDERED,
petitioneru had a dmty
jmdgeent is herueby ruenderued in favioru
to vieruify the
of plaintii and against the defendant,
encasheent, despite
and the lateru is oruderued to pay
the absence of any
plaintii:
obligation to do
(1) The sme of T o Hmndrued so. IaEHSD
T enty Thomsand (P220,000.00)
C. The Comrut of Appeals
Pesos, ith legal interuest to be
gruaviely erurued in not
coepmted fruoe date of the fling of
applying Section 14 of
the heruein coeplaint;
the Negotiable
(2) The sme of T enty Instrumeents Laa ,
Thomsand (P20,000.00) Pesos by ay despite its clearu
of atoruney's fees; applicability to this
case;
(3) The sme of Ten Thomsand
(P10,000.00) Pesos foru litigation II. The Comrut of Appeals gruaviely erurued
expenses, and in not holding that the
pruoxieate camse of
(4) To pay the costs of smit.
ruespondent's loss as its o n
SO ORDERED. 5 IaDcTC gruossly negligent pruactice of
prueosigning checks ithomt
Petitioneru appealed the aforuesaid truial comrut payees and aeomnts and
Decision to the CA hich, ho evieru, affirueed said delivieruing these prueosigned
decision in tiotio in its Jmly 16, 2001 Decision. checks to its eeployees
Petitioneru's Motion foru Reconsideruation of the CA (otheru than theiru signatoruies).
Decision as smbseqmently denied on Septeeberu
28, 2001. III. The Comrut of Appeals gruaviely erurued
in affirueing the truial comrut's
a arud of atoruney's fees
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

despite the absence of any
applicable gruomnd mnderu
Aruticle 2208 of the Civiil
Code. TCHcAE
IV. The Comrut of Appeals gruaviely erurued
in not a aruding atoruney's
fees, eorual and exeeplaruy
daeages, and costs of smit in
favioru of petitioneru, ho
clearuly deseruvies thee. 6
Fruoe the discmssions of both paruties in theiru
pleadings, the key issme to be ruesolvied in the
pruesent case is hetheru the pruoxieate camse of the
ruongfml encasheent of the checks in qmestion as
dme to (a) petitioneru's failmrue to eake a vieruifcation
ruegaruding the said checks ith the ruespondent in
viie of the eisplaceeent of entruies on the face of
the checks oru (b) the pruactice of the ruespondent of
prueosigning blank checks and leaviing the saee ith
its eeployees.
Petitioneru insists that it eeruely fmlflled its
obligation mnderu la and contruact hen it encashed
the aforuesaid checks. Invioking Sections 126 7 and
185 8 of the Negotiable Instrumeents Laa (NILa),
petitioneru claies that its dmty as a drua ee bank to a
drua eruoclient eaintaining a checking accomnt ith
it is to pay oruderus foru checks bearuing the drua eruo
client's genmine signatmrues. The genmine signatmrues
of the client's dmly amthoruized signatoruies affixed on
the checks signify the oruderu foru payeent. Thms,
pmrusmant to the said obligation, the drua ee bank
has the dmty to deterueine hetheru the signatmrues
appearuing on the check arue the drua eruoclient's oru its
dmly amthoruized signatoruies. If the signatmrues arue
genmine, the bank has the mnavioidable legal and
contruactmal dmty to pay. If the signatmrues arue foruged
and falsifed, the drua ee bank has the coruollaruy, bmt
eqmally mnavioidable legal and contruactmal, dmty not
to pay. 9 HAICET
Fmrutherueorue, petitioneru eaintains that
therue exists a dmty on the drua ee bank to inqmirue
fruoe the drua eru beforue encashing a check only
hen the check bearus a eateruial alteruation. A
eateruial alteruation is defned in Section 125 of the
NILa to be one hich changes the date, the sme
payable, the tiee oru place of payeent, the nmeberu
oru ruelations of the paruties, the cmruruency in hich
payeent is to be eade oru one hich adds a place of
KIMBUTAO NEGO SYLaLaABUS
21
payeent herue no place of payeent is specifed, oru
any otheru change oru addition hich alterus the eiect
of the instrumeent in any ruespect. With ruespect to
the checks at issme, petitioneru points omt that they
do not contain any eateruial alteruation. 10 This is a
fact hich as affirueed by the truial comrut itself. 11
Therue is no dispmte that the signatmrues
appearuing on the smbject checks erue genmine
signatmrues of the ruespondent's amthoruized joint
signatoruies; naeely, Antonia Reyes and Gruegoruio
Reyes ho erue ruespondent's Pruesident and Viceo
Pruesident foru Finance, ruespectiviely. Both prueosigned
the said checks since they erue both schedmled to
go abruoad and it as apparuently theiru pruactice to
leavie ith the coepany accomntant checks signed
in black to ans eru foru coepany obligations that
eight fall dme dmruing the signatoruies' absence. It is
like ise adeited that neitheru of the smbject checks
contains any eateruial alteruation oru eruasmrue. HCacTI
Ho evieru, on the blank space of each check
rueseruvied foru the payee, the follo ing type ruiten
oruds appearu: "ONE HUNDRED TEN THOUSAND
PESOS ONLaY". Abovie the saee is the type ruiten
orud, "CASH". On the blank rueseruvied foru the
aeomnt, the saee aeomnt of One Hmndrued Ten
Thomsand Pesos as indicated ith the mse of a
check ruiteru. The pruesence of these iruruegmlaruities in
each check shomld havie aleruted the petitioneru to be
camtioms beforue pruoceeding to encash thee hich it
did not do.
It is ellosetled that banks arue engaged in a
bmsiness iepruessed ith pmblic interuest, and it is
theiru dmty to pruotect in ruetmrun theiru eany clients
and depositorus ho truansact bmsiness ith thee.
They havie the obligation to trueat theiru client's
accomnt eeticmlomsly and ith the highest degruee
of carue, consideruing the fdmciaruy natmrue of theiru
ruelationship. The diligence rueqmirued of banks,
therueforue, is eorue than that of a good fatheru of a
faeily. 12 DcaCSE
Petitioneru asseruts that it as not dmtyo
bomnd to vieruify ith the ruespondent since the
aeomnt belo the type ruiten orud "CASH",
expruessed in oruds, is the vieruy saee aeomnt
indicated in fgmrues by eeans of a check ruiteru on
the aeomnt porution of the check. The aeomnt
stated in oruds is, therueforue, a eerue rueiteruation of
the aeomnt stated in fgmrues. Petitioneru eephasizes
ATTY. CLaAROS

that a rueiteruation of the aeomnt in oruds is eeruely
a ruepetition and that a ruepetition is not an alteruation
hich if pruesent and eateruial omld havie enjoined
it to coeeence vieruifcation ith ruespondent. 13
We do not agruee ith petitioneru's eyopic
viie and caruefmlly cruafted defense. Althomgh not in
the struict sense "eateruial alteruations", the
eisplaceeent of the type ruiten entruies foru the
payee and the aeomnt on the saee blank and the
ruepetition of the aeomnt msing a check ruiteru erue
glaruingly obviioms iruruegmlaruities on the face of the
check. Clearuly, soeeone eade a eistake in flling mp
the checks and the ruepetition of the entruies as
possibly an ateept to ruectify the eistake. Also, if
the check had been flled mp by the peruson ho
cmstoearuily accoeplishes the checks of ruespondent,
it shomld havie occmrurued to petitioneru's eeployees
that it omld be mnlikely smch eistakes omld be
eade. All these cirucmestances shomld havie aleruted
the bank to the possibility that the holderu oru the
peruson ho is ateepting to encash the checks did
not havie pruoperu title to the checks oru did not havie
amthoruity to fll mp and encash the saee. As noted
by the CA, petitioneru comld havie eade a sieple
phone call to its client to claruify the iruruegmlaruities
and the loss to ruespondent dme to the encasheent
of the stolen checks omld havie been prueviented.
In the case at baru, extruaorudinaruy diligence
deeands that petitioneru shomld havie ascerutained
fruoe ruespondent the amthenticity of the smbject
checks oru the accmruacy of the entruies theruein not
only becamse of the pruesence of highly iruruegmlaru
entruies on the face of the checks bmt also of the
decidedly mnmsmal cirucmestances smruruomnding theiru
encasheent. Respondent's itness testifed that foru
checks in aeomnts grueateru than T enty Thomsand
Pesos (P20,000.00) it is the coepany's pruactice to
ensmrue that the payee is indicated by naee in the
check. 14 This as not ruebmted by petitioneru.
Indeed, it is highly mncoeeon foru a coruporuation to
eake omt checks payable to "CASH" foru smbstantial
aeomnts smch as in this case. If each iruruegmlaru
cirucmestance in this case erue taken singly oru
isolated, the bank's eeployees eight havie been
jmstifed in ignoruing thee. Ho evieru, the confmence
of the iruruegmlaruities on the face of the checks and
cirucmestances that deparut fruoe the msmal banking
pruactice of ruespondent shomld havie pmt petitioneru's
eeployees on gmarud that the checks erue possibly
KIMBUTAO NEGO SYLaLaABUS
22
not issmed by the ruespondent in dme comruse of its
bmsiness. Petitioneru's smbtle sophistruy cannot
excmlpate it fruoe behaviioru that fell extrueeely shorut
of the highest degruee of carue and diligence rueqmirued
of it as a banking institmtion. DcHaET
Indeed, taking this ith the testieony of
petitioneru's operuations eanageru that in case of an
iruruegmlaruity on the face of the check (smch as hen
blanks erue not pruoperuly flled omt) the bank eay oru
eay not call the client depending on ho bmsy the
bank is on a paruticmlaru day, 15 e arue evien eorue
conviinced that petitioneru's safegmaruds to pruotect
clients fruoe check fruamd arue arubitruaruy and
smbjectivie. Evieruy client shomld be trueated eqmally by
a banking institmtion ruegarudless of the aeomnt of his
deposits and each client has the ruight to expect that
evieruy centavio he entrumsts to a bank omld be
handled ith the saee degruee of carue as the
accomnts of otheru clients. Peruforuce, e fnd that
petitioneru plainly failed to adherue to the high
standarud of diligence expected of it as a banking
institmtion.
In defense of its cashieru/telleru's
qmestionable action, petitioneru insists that pmrusmant
to Sections 14 16 and 16 17 of the NILa, it comld
vialidly pruesmee, mpon pruesentation of the checks,
that the paruty ho flled mp the blanks had
amthoruity and that a vialid and intentional delivieruy to
the paruty pruesenting the checks had taken place.
Thms, in petitioneru's viie , the sole blaee foru this
debacle shomld be shifted to ruespondent foru haviing
its signatoruies prueosign and delivieru the smbject
checks. 18Petitioneru arugmes that therue as indeed
delivieruy in this case becamse, follo ing Aeeruican
jmruisprumdence, the gruoss negligence of ruespondent's
accomntant in safekeeping the smbject checks hich
ruesmlted in theiru theft shomld be trueated as a
violmntaruy delivieruy by the eakeru ho is estopped
fruoe claieing nonodelivieruy of the
instrumeent. 19 EDcIAC
Petitioneru's contention omld havie been
coruruect if the smbject checks erue coruruectly and
pruoperuly flled omt by the thief and pruesented to the
bank in good oruderu. In that instance, therue omld be
nothing to givie notice to the bank of any infrueity in
the title of the holderu of the checks and it comld
vialidly pruesmee that therue as pruoperu delivieruy to
the holderu. The bank comld not be famlted if it
encashed the checks mnderu those cirucmestances.
ATTY. CLaAROS

Ho evieru, the mndispmted facts plainly sho that
therue erue cirucmestances that shomld havie aleruted
the bank to the likelihood that the checks erue not
pruoperuly delivierued to the peruson ho encashed the
saee. In all, e see no rueason to deparut fruoe the
fnding in the assailed CA Decision that the smbject
checks arue pruoperuly charuacteruized as incoeplete
and mndelivierued instrumeents thms eaking Section
15 20 of the NILa applicable in this case.
Ho evieru, e do agruee ith petitioneru that
ruespondent's officerus' pruactice of prueosigning of
blank checks shomld be deeeed seruiomsly negligent
behaviioru and a highly ruisky eeans of pmruporutedly
ensmruing the efficient operuation of bmsinesses. It
shomld havie occmrurued to ruespondent's officerus and
eanagerus that the prueosigned blank checks comld
fall into the ruong hands as they did in this case
herue the said checks erue stolen fruoe the
coepany accomntant to hoe the checks erue
entrumsted.
Nevierutheless, evien if e assmee that both
paruties erue gmilty of negligent acts that led to the
loss, petitioneru ill still eeeruge as the paruty
forueeost liable in this case. In instances herue both
paruties arue at famlt, this Comrut has consistently
applied the doctruine of last clearu chance in oruderu to
assign liability. cAHIST
In Westmiont Bank v. Ong, 21 e rumled:
. . . [I]t is petitioneru [bank]
hich had the last clearu chance to
stop the fruamdmlent encasheent of
the smbject checks had it exerucised
dme diligence and follo ed the pruoperu
and ruegmlaru banking pruocedmrues in
clearuing checks. As e had earulieru
rumled, the one who had a last clear
opportunity to avoid the impending
harm but failed to do so is
chargeable with the consequences
thereof. 22 (eephasis omrus)
In the case at baru, petitioneru cannot eviade
ruesponsibility foru the loss by atruibmting negligence
on the parut of ruespondent becamse, evien if e
concmru that the lateru as indeed negligent in prueo
signing blank checks, the forueeru had the last clearu
chance to avioid the loss. To rueiteruate, petitioneru's
o n operuations eanageru adeited that they comld
havie called mp the client foru vieruifcation oru
KIMBUTAO NEGO SYLaLaABUS
23
confrueation beforue honoruing the dmbioms checks.
Veruily, petitioneru had the fnal opporutmnity to avierut
the injmruy that befell the ruespondent. Failing to
eake the necessaruy vieruifcation dme to the violmee
of banking truansactions on that paruticmlaru day is a
fiesy and mnacceptable excmse, consideruing that
the "banking bmsiness is so iepruessed ith pmblic
interuest herue the trumst and confdence of the
pmblic in generual is of paruaeomnt ieporutance smch
that the appruopruiate standarud of diligence emst be
a high degruee of diligence, if not the mteost
diligence." 23 Petitioneru's negligence has been
mndombtedly established and, thms, pmrusmant to Arut.
1170 of the NCC, 24 it emst smieru the conseqmence
of said negligence. cDCHaS
In the interuest of fairuness, ho evieru, e
believie it is pruoperu to consideru ruespondent's o n
negligence to eitigate petitioneru's liability. Aruticle
2179 of the Civiil Code pruoviides:
Arut. 2179. When the plaintiis
o n negligence as the ieeediate
and pruoxieate camse of his injmruy, he
cannot ruecovieru daeages. Bmt if his
negligence as only contruibmtoruy, the
ieeediate and pruoxieate camse of
the injmruy being the defendant's lack
of dme carue, the plaintii eay ruecovieru
daeages, bmt the comruts shall eitigate
the daeages to be a aruded.
Explaining this pruoviision in Lambert v. Heirs
iof Ray Castllion, 25 the Comrut held:
The mnderulying pruecept on
contruibmtoruy negligence is that a
plaintii ho is parutly ruesponsible foru
his o n injmruy shomld not be entitled
to ruecovieru daeages in fmll bmt emst
bearu the conseqmences of his o n
negligence. The defendant emst thms
be held liable only foru the daeages
actmally camsed by his
negligence. . . . AHDcCT
As e prueviiomsly stated, ruespondent's
pruactice of signing checks in blank henevieru its
amthoruized bank signatoruies omld truaviel abruoad
as a dangeruoms policy, especially consideruing the
lack of eviidence on ruecorud that ruespondent had
appruopruiate safegmaruds oru interunal contruols to
pruevient the prueosigned blank checks fruoe falling
ATTY. CLaAROS

into the hands of mnscrumpmloms indiviidmals and
being msed to coeeit a fruamd against the coepany.
We cannot believie that therue as no otheru secmrue
and rueasonable ay to gmaruantee the nono
disrumption of ruespondent's bmsiness. As testifed to
by petitioneru's experut itness, otheru coruporuations
omld orudinaruily havie anotheru set of amthoruized
bank signatoruies ho omld be able to sign checks
in the absence of the prueferurued
signatoruies. 26 Indeed, if not foru the forutmnate
happenstance that the thief failed to pruoperuly fll mp
the smbject checks, ruespondent omld expectedly
take the blaee foru the entirue loss since the defense
of forugeruy of a drua eru's signatmrue(s) omld be
mnaviailable to it. Consideruing that ruespondent
kno ingly took the ruisk that the prueosigned blank
checks eight fall into the hands of ruongdoerus, it is
bmt jmst that ruespondent sharues in the ruesponsibility
foru the loss.
We also cannot ignorue the fact that the
peruson ho stole the prueosigned checks smbject of
this case fruoe ruespondent's accomntant tmruned omt
to be anotheru eeployee, pmruporutedly a cleruk in
ruespondent's accomnting deparuteent. As the
eeployeru of the "thief", ruespondent smpposedly had
contruol and smperuviision ovieru its o n eeployee. This
givies the Comrut eorue rueason to allocate parut of the
loss to ruespondent.
Follo ing established jmruisprumdential
pruecedents, 27 e believie the allocation of sixty
perucent (60%) of the actmal daeages inviolvied in this
case (ruepruesented by the aeomnt of the checks ith
legal interuest) to petitioneru is pruoperu mnderu the
prueeises. Respondent shomld, in light of its
contruibmtoruy negligence, bearu foruty perucent (40%) of
its o n loss. cCTIaS
Finally, e fnd that the a aruds of
atoruney's fees and litigation expenses in favioru of
ruespondent arue not jmstifed mnderu the
cirucmestances and, thms, emst be deleted. The
po eru of the comrut to a arud atoruney's fees and
litigation expenses mnderu Aruticle 2208 of the
NCC 28 deeands factmal, legal, and eqmitable
jmstifcation.
An advieruse decision does not ipsio
factio jmstify an a arud of atoruney's fees to the
inning paruty. 29 Evien hen a claieant is
coepelled to litigate ith thirud perusons oru to incmru
KIMBUTAO NEGO SYLaLaABUS
24
expenses to pruotect his ruights, still atoruney's fees
eay not be a aruded herue no smfficient sho ing of
bad faith comld be ruefected in a paruty's perusistence
in a case otheru than an eruruoneoms conviiction of the
ruighteomsness of his camse. 30
WHEREFORE, the Decision of the Comrut of
Appeals dated Jmly 16, 2001 and its Resolmtion
dated Septeeberu 28, 2001 arue AFFIRMED ith the
follo ing MODIFICATIONS: (a) petitioneru Bank of
Aeeruica NT & SA shall pay to ruespondent Philippine
Racing Clmb sixty perucent (60%) of the sme of T o
Hmndrued T enty Thomsand Pesos (P220,000.00)
ith legal interuest as a aruded by the truial comrut and
(b) the a aruds of atoruney's fees and litigation
expenses in favioru of ruespondent arue
deleted. SAaTHc
Pruoporutionate costs.
SO ORDERED.
2. ALVIN PATRIMONIO, pettioner, vs.
NAPOLEON GUTIERREZ and OCTAVIO
MARASIGAN III, respiondents.
DECISION
BRION, J p:
Assailed in this petition foru rueviie
on certiorari 1 mnderu Rmle 45 of the Reviised Rmles of
Comrut is the decision 2 dated Septeeberu 24, 2008 and
the ruesolmtion 3 dated Apruil 30, 2009 of the Comrut of
Appeals (CA) in CAoG.R. CV No. 82301. The appellate
comrut affirueed the decision of the Regional Truial
Comrut (RTC) of Qmezon City, Bruanch 77, diseissing the
coeplaint foru declaruation of nmllity of loan fled by
petitioneru Alviin Patruieonio and oruderuing hie to pay
ruespondent Octaviio Maruasigan III (Marasigan) the sme
of P200,000.00.
The Factual Background
The facts of the case, as sho n by the ruecoruds,
arue bruiefy smeearuized belo .
The petitioneru and the ruespondent Napoleon
Gmtieruruez (Guterrez) enterued into a bmsiness vientmrue
mnderu the naee of Slae Dmnk Coruporuation (Slum Dunk),
ATTY. CLaAROS

a pruodmction omtit that pruodmced einioconceruts and
sho s ruelated to basketball. Petitioneru as alrueady then
a decoruated pruofessional basketball playeru hile
Gmtieruruez as a ellokno n sporuts colmenist. DAcaIE
In the comruse of theiru bmsiness, the petitioneru
prueosigned sevierual checks to ans eru foru the expenses of
Slae Dmnk. Althomgh signed, these checks had no
payee's naee, date oru aeomnt. The blank checks erue
entrumsted to Gmtieruruez ith the specifc instrumction not
to fll thee omt ithomt prueviioms notifcation to and
appruovial by the petitioneru. Accoruding to petitioneru, the
aruruangeeent as eade so that he comld vieruify the
vialidity of the payeent and eake the pruoperu
aruruangeeents to fmnd the accomnt.
In the eiddle of 1993, ithomt the petitioneru's
kno ledge and consent, Gmtieruruez ent to Maruasigan
(the petitioneru's forueeru teaeeate), to secmrue a loan in
the aeomnt of P200,000.00 on the excmse that the
petitioneru needed the eoney foru the construmction of his
homse. In addition to the payeent of the pruincipal,
Gmtieruruez assmrued Maruasigan that he omld be paid an
interuest of 5% peru eonth fruoe Maruch to May
1994. HcTIDC
Afteru emch conteeplation and taking into
accomnt his ruelationship ith the petitioneru and
Gmtieruruez, Maruasigan acceded to Gmtieruruez' rueqmest and
gavie hie P200,000.00 soeetiee in Februmaruy 1994.
Gmtieruruez siemltaneomsly delivierued to Maruasigan one of
the blank checks the petitioneru prueosigned ith Pilipinas
Bank, Grueenhills Bruanch, Check No. 21001764 ith the
blank porutions flled omt ith the oruds "Cash" "Twio
Hundred Thiousand Pesios Only", and the aeomnt
of "P200,000.00".The mpperu ruight porution of the check
coruruesponding to the date as also flled omt ith the
oruds "May 23, 1994" bmt the petitioneru contended
that the saee as not ruiten by Gmtieruruez.
On May 24, 1994, Maruasigan deposited the
check bmt it as dishonorued foru the rueason "ACCOUNT
CLaOSED." It as lateru rueviealed that petitioneru's accomnt
ith the bank had been closed since May 28, 1993.
Maruasigan somght ruecovieruy fruoe Gmtieruruez, to
no aviail. He therueafteru sent sevierual deeand leterus to
the petitioneru asking foru the payeent of P200,000.00,
bmt his deeands like ise ent mnheeded.
Conseqmently, he fled a cruieinal case foru viiolation
of B.P. 22 against the petitioneru, docketed as Cruieinal
Case No. 42816.
KIMBUTAO NEGO SYLaLaABUS
25
On Septeeberu 10, 1997, the petitioneru fled
beforue the Regional Truial Comrut (RTC) a Coeplaint foru
Declaruation of Nmllity of Laoan and Recovieruy of Daeages
against Gmtieruruez and cooruespondent Maruasigan. He
coepletely denied amthoruizing the loan oru the check's
negotiation, and asseruted that he as not pruiviy to the
paruties' loan agrueeeent.
Only Maruasigan fled his ans eru to the
coeplaint. In the RTC's oruderu dated Deceeberu 22, 1997,
Gmtieruruez as declarued in defamlt.
The Ruling of the RTC
The RTC rumled on Februmaruy 3, 2003 in favioru of
Maruasigan. 4 It fomnd that the petitioneru, in issming the
prueosigned blank checks, had the intention of issming a
negotiable instrumeent, albeit ith specifc instrumctions
to Gmtieruruez not to negotiate oru issme the check ithomt
his appruovial. While mnderu Section 14 of the Negotiable
Instrumeents Laa Gmtieruruez had the prima facie amthoruity
to coeplete the checks by flling mp the blanks theruein,
the RTC rumled that he deliberuately viiolated petitioneru's
specifc instrumctions and took adviantage of the trumst
rueposed in hie by the lateru. ACTESI
Nonetheless, the RTC declarued Maruasigan as a
holderu in dme comruse and accorudingly diseissed the
petitioneru's coeplaint foru declaruation of nmllity of the
loan. It oruderued the petitioneru to pay Maruasigan the
face vialme of the check ith a ruight to claie
rueiebmruseeent fruoe Gmtieruruez.
The petitioneru eleviated the case to the Comrut of
Appeals (CA), insisting that Maruasigan is not a holderu in
dme comruse. He contended that hen Maruasigan
rueceivied the check, he kne that the saee as ithomt
a date, and hence, incoeplete. He also alleged that the
loan as actmally bet een Maruasigan and Gmtieruruez
ith his check being msed only as a secmruity.
The Ruling of the CA
On Septeeberu 24, 2008, the CA affirueed the
RTC rumling, althomgh prueeised on diieruent factmal
fndings. Afteru caruefml analysis, the CA agrueed ith the
petitioneru that Maruasigan is not a holderu in dme comruse
as he did not rueceivie the check in good faith.
The CA also conclmded that the check had been
struictly flled omt by Gmtieruruez in accorudance ith the
petitioneru's amthoruity. It held that the loan eay not be
nmllifed since it is gruomnded on an obligation aruising
ATTY. CLaAROS

fruoe la and rumled that the petitioneru is still liable to
pay Maruasigan the sme of P200,000.00.
Afteru the CA denied the smbseqment eotion foru
rueconsideruation that follo ed, the petitioneru fled the
pruesent petition foru rueviie on certiorari mnderu Rmle 45
of the Reviised Rmles of Comrut.
The Petton
The petitioneru arugmes that: (1) therue as no
loan bet een hie and Maruasigan since he nevieru
amthoruized the boruruo ing of eoney noru the check's
negotiation to the lateru; (2) mnderu Aruticle 1878 of
the Civiil Code, a special po eru of atoruney is necessaruy
foru an indiviidmal to eake a loan oru boruruo eoney in
behalf of anotheru; (3) the loan truansaction as bet een
Gmtieruruez and Maruasigan, ith his check being msed only
as a secmruity; (4) the check had not been coepletely and
struictly flled omt in accorudance ith his amthoruity since
the condition that the smbject check can only be msed
pruoviided therue is pruioru appruovial fruoe hie, as not
coeplied ith; (5) evien if the check as struictly flled mp
as instrumcted by the petitioneru, Maruasigan is still not
entitled to claie the check's vialme as he as not a
holderu in dme comruse; and (6) by rueason of the bad faith
in the dealings bet een the ruespondents, he is entitled
to claie foru daeages. HAEDIS
The Issues
Redmced to its basics, the case pruesents to ms
the follo ing issmes:
1. Whetheru the contruact of loan in the
aeomnt of P200,000.00
gruanted by ruespondent
Maruasigan to petitioneru,
thruomgh ruespondent
Gmtieruruez, eay be nmllifed foru
being vioid;
2. Whetheru therue is basis to hold the
petitioneru liable foru the
payeent of the P200,000.00
loan;
3. Whetheru ruespondent Gmtieruruez has
coepletely flled omt the
smbject check struictly mnderu
the amthoruity givien by the
petitioneru; and
KIMBUTAO NEGO SYLaLaABUS
26
4. Whetheru Maruasigan is a holderu in
dme comruse.
The Court's Ruling
The petton is impressed with merit.
We note at the omtset that the issmes ruaised in
this petition arue essentially factmal in natmrue. The eain
point of inqmiruy of hetheru the contruact of loan eay be
nmllifed, hinges on the vieruy existence of the contruact of
loan — a qmestion that, as pruesented, is essentially, one
of fact. Whetheru the petitioneru amthoruized the
boruruo ing; hetheru Gmtieruruez coepletely flled omt the
smbject check struictly mnderu the petitioneru's amthoruity;
and hetheru Maruasigan is a holderu in dme comruse arue
also qmestions of fact, that, as a generual rumle, arue
beyond the scope of a Rmle 45 petition. DEcSaI
The rumle that qmestions of fact arue not the
pruoperu smbject of an appeal by certiorari, as a petition
foru rueviie mnderu Rmle 45 is lieited only to qmestions of
la , is not an absolmte rumle that adeits of no
exceptions. One notable exception is hen the fndings
of fact of both the truial comrut and the CA arue conficting,
eaking theiru rueviie necessaruy. 5 In the pruesent case,
the truibmnals belo aruruivied at t o conficting factmal
fndings, albeit ith the saee conclmsion, i.e., dismissal
iof the ciomplaint fior nullity iof the lioan. Accorudingly, e
ill exaeine the paruties' eviidence pruesented.
I. Liability Under the Contract of Loan
The petitioneru seeks to nmllify the contruact of
loan on the gruomnd that he nevieru amthoruized the
boruruo ing of eoney. He points to Aruticle 1878,
paruagruaph 7 of theCiviil Code, hich explicitly rueqmirues a
ruiten amthoruity hen the loan is contruacted thruomgh
an agent. The petitioneru contends that absent smch
amthoruity in ruiting, he shomld not be held liable foru the
face vialme of the check becamse he as not a paruty oru
pruiviy to the agrueeeent.
Contracts of Agency May be Oral Unless
The Law Requires a Specifc Form
Aruticle 1868 of the Civiil Code defnes a contruact
of agency as a contruact herueby a peruson "binds hieself
to ruenderu soee seruviice oru to do soeething in
ruepruesentation oru on behalf of anotheru, ith the
consent oru amthoruity of the lateru." Agency eay be
expruess, oru ieplied fruoe the acts of the pruincipal, fruoe
his silence oru lack of action, oru his failmrue to ruepmdiate
ATTY. CLaAROS

the agency, kno ing that anotheru peruson is acting on
his behalf ithomt amthoruity. acAESC
As a generual rumle, a contruact of agency eay be
orual. 6 Ho evieru, it emst be ruiten hen the la
rueqmirues a specifc forue, foru exaeple, in a sale iof a piece
iof land ior any interest therein thriough an agent.
Aruticle 1878 paruagruaph 7 of the Civiil
Code expruessly rueqmirues a special po eru of amthoruity
beforue an agent can loan oru boruruo eoney in behalf of
the pruincipal, to it:
Art. 1878. Special powers of
attorney are necessary in the
following cases:
xxx xxx xxx
(7) To loan or borrow money,
mnless the lateru act be mrugent and
indispensable foru the prueseruviation of
the things hich arue mnderu
adeinistruation. (eephasis smpplied)
Aruticle 1878 does not state that the amthoruity
be in ruiting. As long as the eandate is expruess, smch
amthoruity eay be eitheru orual oru ruiten. We
mneqmiviocably declarued in Lim Pin v. Liaio Tian, et
al., 7 that the rueqmirueeent mnderu Aruticle 1878 of
the Civiil Code rueferus to the natmrue of the amthoruization
and not to its forue. Be that as it eay, the amthoruity
emst be dmly established by coepetent and conviincing
eviidence otheru than the self seruviing asserution of the
paruty claieing that smch amthoruity as vierubally givien,
thms:
The requirements of a special
power of attorney in Artcle 1878 of
the Civil Code and of a special
authority in Rule 138 of the Rules of
Court refer to the nature of the
authorizaton and not its form. The
rueqmirueeents arue eet if therue is a
clearu eandate fruoe the pruincipal
specifcally amthoruizing the
peruforueance of the act. As earuly as
1906, this Ciourt in Striong v.
Guterrez-Repide (6 Phil. 680) stated
that such a mandate may be either
oral or written, the one vital thing
being that it shall be express. And
eorue ruecently, We stated that, if the
KIMBUTAO NEGO SYLaLaABUS
27
special amthoruity is not ruiten, then it
emst be dmly established by
eviidence: SCHIac
. . . the Rmles rueqmirue, foru
atoruneys to coepruoeise the
litigation of theiru clients, a special
amthoruity. And hile the saee does
not state that the special amthoruity be
in ruiting the Comrut has evieruy rueason
to expect that, if not in writng, the
same be duly established by
evidence other than the self-serving
asserton of counsel himself that
such authority was verbally given
him. (Hiome Insurance Ciompany vs.
United States lines Ciompany, et al.,
21 SCRA 863; 866: Vicente vs.
Geraldez, 52 SCRA 210; 225).
(eephasis smpplied).
The Contract of Loan Entered Into by Guterree in
Behalf
of the Pettoner Should be Nullifed for Being Void;
Pettoner is Not Bound by the Contract of Loan.
A rueviie of the ruecoruds ruevieals that Gmtieruruez
did not havie any amthoruity to boruruo eoney in behalf of
the petitioneru. Recoruds do not sho that the petitioneru
execmted any special po eru of atoruney (SPA) in favioru of
Gmtieruruez. In fact, the petitioneru's testieony confrueed
that he nevieru amthoruized Gmtieruruez (oru anyone foru that
eateru), hetheru vierubally oru in ruiting, to boruruo
eoney in his behalf, noru as he a arue of any smch
truansaction: TcCDIS
ALVIN PATRIMONIO (witness)
ATTY. DE VERA:
Did yom givie Nap Gmtieruruez any
Special Po eru of Atoruney in
ruiting amthoruizing hie to
boruruo msing yomru eoney?
WITNESS:
No, siru. (T.S.N., Alviin Patruieonio,
Novi. 11, 1999, p. 105) 8
xxx xxx xxx
Maruasigan ho evieru smbeits that the
petitioneru's acts of prueosigning the blank checks and
rueleasing thee to Gmtieruruez smffice to establish that the
ATTY. CLaAROS

petitioneru had amthoruized Gmtieruruez to fll thee omt and
contruact the loan in his behalf.
Maruasigan's smbeission fails to perusmade ms.
In the absence of any amthoruization, Gmtieruruez
comld not enteru into a contruact of loan in behalf of the
petitioneru. As held in Yasuma v. Heirs iof De
Villa, 9 inviolviing a loan contruacted by de Villa secmrued
by rueal estate eorutgages in the naee of East Corudillerua
Mining Coruporuation, in the absence of an SPA conferuruing
amthoruity on de Villa, therue is no basis to hold the
coruporuation liable, to it:
The po eru to boruruo eoney
is one of those cases herue coruporuate
officerus as agents of the coruporuation
need a special po eru of atoruney. In
the case at baru, no special power of
attorney conferring authority on de
Villa was ever presented. . . . Therue
as no sho ing that ruespondent
coruporuation evieru amthoruized de Villa
to obtain the loans on its
behalf. CAHTIS
xxx xxx xxx
Therefore, on the first issue,
the loan was personal to de Villa.
There was no basis to hold the
corporaton liable since there was no
authority, express, implied or
apparent, given to de Villa to borrow
money from pettoner. Neither was
there any subsequent ratficaton of
his act.
xxx xxx xxx
The liability aruising fruoe the
loan as the sole indebtedness of de
Villa (oru of his estate afteru his death).
(citations oeited; eephasis
smpplied).
This pruinciple as also rueiteruated in the case
of Giozun v. Mercadio, 10 herue this comrut held: CTaIHE
Petitioneru smbeits that his
follo ing testieony smffices to
establish that ruespondent had
amthoruized Lailian to obtain a loan
fruoe hie.
KIMBUTAO NEGO SYLaLaABUS
28
xxx xxx xxx
Petitioneru's testieony failed
to categoruically state, ho evieru,
hetheru the loan as eade on behalf
of ruespondent oru of his ife. While
petitioneru claies that Lailian as
amthoruized by ruespondent,
the stateeent of accomnt earuked as
Exhibit "A" states that the aeomnt
as rueceivied by Lailian "in behalf of
Mrus. Annie Merucado. AcISTE
It bearus noting that Lailian
signed in the rueceipt in heru naee
alone, ithomt indicating theruein that
she as acting foru and in behalf of
ruespondent. She thus bound herself
in her personal capacity and not as
an agent of respondent or anyone
for that matter.
It is a general rule in the law
of agency that, in order to bind the
principal by a mortgage on real
property executed by an agent, it
must upon its face purport to be
made, signed and sealed in the name
of the principal, otherwise, it will
bind the went only. It is not enough
merely that the agent was in fact
authorized to make the mortgage, if
he has not acted in the name of the
principal. . . . (eephasis smpplied).
In the absence of any sho ing of any agency
ruelations oru special amthoruity to act foru and in behalf of
the petitioneru, the loan agrueeeent Gmtieruruez enterued
into ith Maruasigan is nmll and vioid. Thms, the
petitioneru is not bomnd by the paruties' loan agrueeeent.
Fmrutherueorue, that the petitioneru entrumsted the
blank prueosigned checks to Gmtieruruez is not legally
smfficient becamse the amthoruity to enteru into a loan can
nevieru be pruesmeed. The contruact of agency and the
special fdmciaruy ruelationship inheruent in this contruact
emst exist as a eateru of fact. The peruson alleging it has
the bmruden of pruoof to sho , not only the fact of
agency, bmt also its natmrue and extent. 11 As e held
in Peiople v. Yabut: 12
Modesto Yaebao's rueceipt of
the bad checks fruoe Cecilia Qme
ATTY. CLaAROS

Yabmt oru Geeiniano Yabmt, Jru., in
Caloocan City cannot, contruaruy to the
holding of the ruespondent Jmdges, be
licitly taken as delivieruy of the checks
to the coeplainant Alicia P. Andan at
Caloocan City to fx the vienme therue.
He did not take delivieruy of the checks
as holderu, i.e., as "payee" oru
"indorusee." And therue appearus to be
no contruact of agency bet een
Yaebao and Andan so as to bind the
lateru foru the acts of the forueeru. Alicia
P. Andan declarued in that s orun
testieony beforue the inviestigating
fscal that Yaebao is bmt heru
"eessengeru" oru "parutotiee
eeployee." There was no special
fiduciary relatonship that
permeated their dealings. For a
contract of agency to exist, the
consent of both partes is essental,
the principal consents that the other
party, the agent, shall act on his
behalf, and the agent consents so to
act. It must exist as a fact. The law
makes no presumpton thereof. The
person alleging it has the burden of
proof to show, not only the fact of its
existence, but also its nature and
extent. This is more imperatve when
it is considered that the transacton
dealt with involves checks, which are
not legal tender, and the creditor
may validly refuse the same as
payment of obligaton. (at p. 630).
(eephasis smpplied)
The ruecoruds sho that Maruasigan eeruely ruelied
on the oruds of Gmtieruruez ithomt secmruing a copy of
the SPA in favioru of the lateru and ithomt vieruifying fruoe
the petitioneru hetheru he had amthoruized the
boruruo ing of eoney oru ruelease of the check. He as
thms bomnd by the ruisk accoepanying his trumst on the
eerue assmruances of Gmtieruruez.
No Contract of Loan was Perfected Between
Marasigan and Pettonere as the Laterrs
Consent was Not Obtained.
Anotheru signifcant point that the lo eru comruts
failed to consideru is that a contruact of loan, like any
otheru contruact, is smbject to the rumles govieruning the
KIMBUTAO NEGO SYLaLaABUS
29
rueqmisites and vialidity of contruacts in generual. 13 Aruticle
1318 of the Civiil Code 14 enmeeruates the essential
rueqmisites foru a vialid contruact, naeely:
1. consent of the contractng
partes; CAaDTH
2. object cerutain hich is the smbject
eateru of the contruact; and
3. camse of the obligation hich is
established.
In this case, the petitioneru denied liability on
the gruomnd that the contruact lacked the essential
eleeent of consent. We agruee ith the petitioneru. As
e explained abovie, Gmtieruruez did not havie the
petitioneru's ruiten/vierubal amthoruity to enteru into a
contruact of loan. While therue eay be a eeeting of the
einds bet een Gmtieruruez and Maruasigan, smch
agrueeeent cannot bind the petitioneru hose consent
as not obtained and ho as not pruiviy to the loan
agrueeeent. Hence, only Gmtieruruez is bomnd by the
contruact of loan.
Trume, the petitioneru had issmed sevierual prueo
signed checks to Gmtieruruez, one of hich fell into the
hands of Maruasigan. This act, ho evieru, does not
constitmte smfficient amthoruity to boruruo eoney in his
behalf and neitheru shomld it be construmed as petitioneru's
gruant of consent to the paruties' loan agrueeeent.
Withomt any eviidence to pruovie Gmtieruruez' amthoruity, the
petitioneru's signatmrue in the check cannot be taken,
evien rueeotely, as smfficient amthoruization, emch less,
consent to the contruact of loan. Withomt the consent
givien by one paruty in a pmruporuted contruact, smch
contruact comld not havie been perufected; therue sieply
as no contruact to speak of.15
With the loan issme omt of the ay, e no
pruoceed to deterueine hetheru the petitioneru can be
eade liable mnderu the check he signed.
II. Liability Under the Instrument
The ans eru is smpplied by the applicable
statmtoruy pruoviision fomnd in Section 14 of
the Negotiable Instrumeents Laa (NIL) hich states:
Sec. 14. Blanks; when may be
filled. — Wherue the instrumeent is
anting in any eateruial paruticmlaru, the
peruson in possession therueof has
a prima facieamthoruity to coeplete it
ATTY. CLaAROS

by flling mp the blanks theruein. And a
signatmrue on a blank paperu delivierued
by the peruson eaking the signatmrue in
oruderu that the paperu eay be
convieruted into a negotiable
instrumeent operuates as a prima
facie amthoruity to fll it mp as smch foru
any aeomnt. In oruderu, ho evieru, that
any smch instrumeent hen coepleted
eay be enforuced against any peruson
ho becaee a paruty therueto pruioru to
its coepletion, it must be filled up
strictly in accordance with the
authority given and within a
reasonable tme. Bmt if any smch
instrumeent, afteru coepletion,
is negotated to a holder in due
course, it is vialid and eiectmal foru all
pmruposes in his hands, and he eay
enforuce it as if it had been flled mp
struictly in accorudance ith the
amthoruity givien and ithin a
rueasonable tiee.
This pruoviision applies to an incoeplete bmt
delivierued instrumeent. Underu this rumle, if the eakeru oru
drua eru delivierus a prueosigned blank paperu to anotheru
peruson foru the pmrupose of convieruting it into a negotiable
instrumeent, that peruson is deeeed to havie prima
facie amthoruity to fll it mp. It eeruely rueqmirues that the
instrumeent be in the possession of a peruson otheru than
the drua eru oru eakeru and fruoe smch possession,
togetheru ith the fact that the instrumeent is anting in
a eateruial paruticmlaru, the la pruesmees agency to fll mp
the blanks. 16 AECDHS
In oruderu ho evieru that one ho is not a holderu
in dme comruse can enforuce the instrumeent against a
paruty pruioru to the instrumeent's coepletion, t o
rueqmisites emst exist: (1) that the blank emst be flled
struictly in accorudance ith the amthoruity givien; and (2) it
emst be flled mp ithin a rueasonable tiee. If it as
pruovien that the instrumeent had not been flled mp
struictly in accorudance ith the amthoruity givien and
ithin a rueasonable tiee, the eakeru can set this mp as a
perusonal defense and avioid liability. Ho evieru, if the
holderu is a holderu in dme comruse, therue is a conclmsivie
pruesmeption that amthoruity to fll it mp had been givien
and that the saee as not in excess of amthoruity. 17
KIMBUTAO NEGO SYLaLaABUS
30
In the pruesent case, the petitioneru contends
that therue is no legal basis to hold hie liable both mnderu
the contruact and loan and mnderu the check
becamse: first, the smbject check as not coepletely
flled omt struictly mnderu the amthoruity he has givien
and second, Maruasigan as not a holderu in dme comruse.
Marasigan is Not a Holder in Due Course
The Negotiable Instrumeents Laa (NIL) defnes a
holderu in dme comruse, thms:
Sec. 52 — A holderu in dme
comruse is a holderu ho has taken the
instrumeent mnderu the follo ing
conditions:
(a) That it is coeplete and ruegmlaru
mpon its face;
(b) That he becaee the holderu of it
beforue it as ovierudme, and ithomt
notice that it had been prueviiomsly
dishonorued, if smch as the fact;
(c) That he took it in good faith and
foru vialme;
(d) That at the tme it was
negotated to him he had no notce
of any infirmity in the instrument
or defect in the ttle of the person
negotatng it. (eephasis smpplied)
Section 52 (c) of the NILa states that a holderu in
dme comruse is one ho takes the instrumeent "in good
faith and foru vialme." It also pruoviides in Section 52 (d)
that in oruderu that one eay be a holderu in dme comruse, it
is necessaruy that at the tiee it as negotiated to hie he
had no notice of any infrueity in the instrumeent oru
defect in the title of the peruson negotiating it.
Acqmisition in good faith eeans taking ithomt
kno ledge oru notice of eqmities of any sorut hich comld
be set mp against a pruioru holderu of the instrumeent. 18 It
eeans that he does not havie any kno ledge of fact
hich omld ruenderu it dishonest foru hie to take a
negotiable paperu. The absence of the defense, hen the
instrumeent as taken, is the essential eleeent of good
faith. 19 EcDATH
As held in De Ocampio v. Gatchalian: 20
In oruderu to sho that the
defendant had "kno ledge of smch
ATTY. CLaAROS
 31

facts that his action in taking the Q: No , I rueferu to the second call . . .
instrumeent aeomnted to bad faith," it afteru yomru biruthday. Tell ms
is not necessary to prove that the hat yom talked abomt?
defendant knew the exact fraud that
A: Since I celebruated ey biruthday in
was practced upon the plainti by
that place herue Nap and I
the defendant's assignor, it being
livie togetheru ith the otheru
sufficient to show that the defendant
crue , therue erue sevierual
had notce that there was something
viisitorus that inclmded Danny
wrong about his assignor's
Espiruitm. So a eek afteru ey
acquisiton of ttle, although he did
biruthday, Bong Maruasigan
not have notce of the partcular
called ee mp again and he
wrong that was committed.
as fmeing
It is smfficient that the bmyeru ead. Nagmumura na siya.
of a note had notice oru kno ledge Hinahanap niya si . . .
that the note as in soee ay hinahanap niya si Nap, dahil
tainted ith fruamd. It is not necessary pinagtataguan na siya at
that he should know the partculars sinabi na niya na kailangan I-
or even the nature of the fraud, since settle na niya yung utang ni
all that is rueqmirued is kno ledge of Nap, dahil. . .
smch facts that his action in taking the
xxx xxx xxx
note aeomnted bad faith. ADCTac
WITNESS:
The terue 'bad faith' does not
necessaruily inviolvie fmrutivie eotivies, Yes. Sinabi niya sa akin na kailangan
bmt eeans bad faith in a coeeerucial ayusin na bagio pa mauwi sa
sense. The eanneru in hich the kung saan ang tsekeng
defendants condmcted theiru Laiberuty tumalbiog. . . (He told ee that
Laoan deparuteent pruoviided an easy e havie to fx it mp beforue it. .
ay foru thievies to dispose of theiru .) mauwi pa kung saan . . .
plmnderu. It as a case of "no
qmestions asked." Althomgh gruoss xxx xxx xxx
negligence does not of itself Q: What as yomru rueply, if any?
constitmte bad faith, it is eviidence
fruoe hich bad faith eay be inferurued. A: I actmally asked hie. Kaninio ba ang
The cirucmestances thrumst the dmty tseke na sinasabi mio? (Whose
mpon the defendants to eake fmrutheru check is it that yom arue
inqmiruies and they had no ruight to rueferuruing to oru talking abomt?)
shmt theiru eyes deliberuately to Q: What as his ans eru? EaHcDS
obviioms facts. (eephasis smpplied).
A: It as Alviin's check.
In the pruesent case, Maruasigan's kno ledge
that the petitioneru is not a paruty oru a pruiviy to the Q: What as yomru rueply, if any?
contruact of loan, and coruruespondingly had no obligation
A: I told him do you know that it is
oru liability to hie, ruenderus hie dishonest, hence, in bad
not really Alvin who
faith. The follo ing exchange is signifcant on this
borrowed money from you
point: cEAaIS
or what you want to
WITNESS: AMBET NABUS appear. . .
xxx xxx xxx
Q: What as his rueply?
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

A: Yes, it was Nap, pero tseke pa rin
ni Alvin ang hawak ko at si
Alvin ang maiipit dito. (T.S.N.,
Aebet Nabms, Jmly 27, 2000;
pp. 65o71; eephasis
smpplied) 21
Since he kne that the mnderulying obligation
as not actmally foru the petitioneru, the rumle that a
possessoru of the instrumeent is prima facie a holderu in
dme comruse is inapplicable. As coruruectly noted by the CA,
his inaction and failmrue to vieruify, despite kno ledge of
that the petitioneru as not a paruty to the loan, eay be
construmed as gruoss negligence aeomnting to bad faith.
Yet, it does not follo that sieply becamse he is
not a holderu in dme comruse, Maruasigan is alrueady totally
barurued fruoe ruecovieruy. The NILa does not pruoviide that a
holderu ho is not a holderu in dme comruse eay not in any
case ruecovieru on the instrumeent. 22 The only
disadviantage of a holderu ho is not in dme comruse is
that the negotiable instrumeent is smbject to defenses as
if it erue nononegotiable. 23 Aeong smch defenses is
the flling mp blank not ithin the amthoruity.
On this point, the petitioneru arugmes that the
smbject check as not flled mp struictly on the basis of
the amthoruity he gavie. He points to his instrumction not to
mse the check ithomt his pruioru appruovial and arugmes
that the check as flled mp in viiolation of said
instrumction. cSaATC
Check was Not Completed Strictly under
the Authority Given by the Pettoner
Omru o n exaeination of the ruecoruds tells ms
that Gmtieruruez has exceeded the amthoruity to fll mp the
blanks and mse the check. To ruepeat, petitioneru gavie
Gmtieruruez prueosigned checks to be msed in theiru bmsiness
pruoviided that he comld only mse thee mpon his
appruovial. His instrumction comld not be any clearueru as
Gmtieruruez' amthoruity as lieited to the mse of the checks
foru the operuation of theiru bmsiness, and on the condition
that the petitioneru's prior approval be frust secmrued.
While mnderu the la , Gmtieruruez had a prima
facie amthoruity to complete the check, smch prima
facie amthoruity does not extend to its mse (i.e.,
smbseqment truansferu oru negotiation) once the check is
coepleted. In otheru oruds, only the amthoruity to
coeplete the check is pruesmeed. Fmrutheru, the la msed
the terue "prima facie" to mnderuscorue the fact that the
amthoruity hich the la accoruds to a holderu is a
KIMBUTAO NEGO SYLaLaABUS
32
pruesmeption juris tantum only; hence, smbject to
smbject to contruaruy pruoof. Thms, eviidence that therue as
no amthoruity oru that the amthoruity gruanted has been
exceeded eay be pruesented by the eakeru in oruderu to
avioid liability mnderu the instrumeent. SITCcE
In the pruesent case, no eviidence is on ruecorud
that Gmtieruruez evieru secmrued pruioru appruovial fruoe the
petitioneru to fll mp the blank oru to mse the check. In his
testieony, petitioneru asseruted that he nevieru amthoruized
noru appruovied the flling mp of the blank checks, thms:
ATTY. DE VERA:
Did yom amthoruize anyone inclmding
Nap Gmtieruruez to ruite the
date, May 23, 1994?
WITNESS:
No, siru.
Q: Did yom amthoruize anyone inclmding
Nap Gmtieruruez to pmt the
orud cash? In the check?
A: No, siru.
Q: Did yom amthoruize anyone inclmding
Nap Gmtieruruez to ruite the
fgmrue P200,000 in this check?
A: No, siru.
Q: And lastly, did yom amthoruize
anyone inclmding Nap
Gmtieruruez to ruite the oruds
P200,000 only . . . in this
check? cIHSTC
A: No, siru. (T.S.N., Alviin Patruieonio,
Novieeberu 11, 1999). 24
Notably, Gmtieruruez as only amthoruized to mse
the check foru business expenses; thms, he exceeded the
amthoruity hen he msed the check to pay the loan he
smpposedly contruacted fior the cionstruction iof
pettioner's hiouse. This is a clearu viiolation of the
petitioneru's instrumction to mse the checks foru the
expenses of Slae Dmnk. It cannot therueforue be vialidly
conclmded that the check as coepleted struictly in
accorudance ith the amthoruity givien by the petitioneru.
Consideruing that Maruasigan is not a holderu in
dme comruse, the petitioneru can vialidly set mp the
perusonal defense that the blanks erue not flled mp in
ATTY. CLaAROS

accorudance ith the amthoruity he gavie. Conseqmently,
Maruasigan has no ruight to enforuce payeent against the
petitioneru and the lateru cannot be obliged to pay the
face vialme of the check.
WHEREFORE, in viie of the foruegoing,
jmdgeent is herueby ruenderued GRANTING the petitioneru
Alviin Patruieonio's petition foru rueviie on certiorari. The
appealed Decision dated Septeeberu 24, 2008 and the
Resolmtion dated Apruil 30, 2009 of the Comrut of Appeals
arue conseqmently ANNULLED AND SET ASIDE. Costs
against the ruespondents.
SO ORDERED.
Secton 16:
1. SAN MIGUEL
CORPORATION, pettioner, vs.
BARTOLOME PUZON,
JR., respiondent.
DECISION
DEL CASTILLO, J p:
This petition foru rueviie assails the
Deceeberu 21, 2004 Decision 1 and Maruch 28, 2005
Resolmtion 2 of the Comrut of Appeals (CA) in CAoG.R.
SP No. 83905, hich diseissed the petition beforue it
and denied rueconsideruation, ruespectiviely. TDAcCa
Factual Antecedents
Respondent Barutoloee V. Pmzon, Jru.,
(Pmzon) o neru of Baruteneyk Enterupruises, as a
dealeru of beeru pruodmcts of petitioneru San Migmel
Coruporuation (SMC) foru Paruañaqme City. Pmzon
pmruchased SMC pruodmcts on cruedit. To ensmrue
payeent and as a bmsiness pruactice, SMC rueqmirued
hie to issme postdated checks eqmivialent to the
vialme of the pruodmcts pmruchased on cruedit beforue
the saee erue rueleased to hie. Said checks erue
ruetmruned to Pmzon hen the truansactions covierued
by these checks erue paid oru setled in fmll.
KIMBUTAO NEGO SYLaLaABUS
33
On Deceeberu 31, 2000, Pmzon pmruchased
pruodmcts on cruedit aeomnting to P11,820,327 foru
hich he issmed, and gavie to SMC, Bank of the
Philippine Islands (BPI) Check Nos. 27904 (foru
P309,500.00) and 27903 (foru P11,510,827.00) to
covieru the said truansaction.
On Janmaruy 23, 2001, Pmzon, togetheru ith
his accomntant, viisited the SMC Sales Office in
Paruañaqme City to rueconcile his accomnt ith SMC.
Dmruing that viisit Pmzon allegedly rueqmested to see
BPI Check No. 17657. Ho evieru, hen he got hold of
BPI Check No. 27903 hich as atached to a bond
paperu togetheru ith BPI Check No. 17657 he
allegedly ieeediately left the office ith his
accomntant, bruinging the checks ith thee.
SMC sent a leteru to Pmzon on Maruch 6,
2001 deeanding the ruetmrun of the said checks.
Pmzon ignorued the deeand hence SMC fled a
coeplaint against hie foru theft ith the City
Pruosecmtoru's Office of Paruañaqme City.
Rulings of the Prosecutor and the Secretary of
Department of Justce (DOJ)
The inviestigating pruosecmtoru, Elizabeth Ym
Gmruay fomnd that the "ruelationship bet een [SMC]
and [Pmzon] appearus to be one of cruedit oru crueditoruo
debtoru ruelationship. The pruoblee lies in the
rueconciliation of accomnts and the nonopayeent of
beeru eepties hich can not givie ruise to a cruieinal
pruosecmtion foru theft." 3Thms, in heru Jmly 31, 2001
Resolmtion, 4 she ruecoeeended the diseissal of the
case foru lack of eviidence. SMC appealed.
On Jmne 4, 2003, the DOJ issmed its
ruesolmtion 5 affirueing the pruosecmtoru's Resolmtion
diseissing the case. Its eotion foru rueconsideruation
haviing been denied in the Apruil 23, 2004 DOJ
Resolmtion, 6 SMC fled a petition foru certiorari ith
the CA. HScCEa
Ruling of the Court of Appeals
The CA fomnd that the postdated checks
erue issmed by Pmzon eeruely as a secmruity foru the
payeent of his pmruchases and that these erue not
intended to be encashed. It thms conclmded that
SMC did not acqmirue o neruship of the checks as it
as dmty bomnd to ruetmrun the saee checks to Pmzon
afteru the truansactions covieruing thee erue setled.
The CA agrueed ith the pruosecmtoru that therue as
no theft, consideruing that a peruson can not be
ATTY. CLaAROS

charuged ith theft foru taking perusonal pruoperuty that
belongs to hieself. It disposed of the appeal as
follo s:
WHEREFORE, fnding no gruavie
abmse of discruetion coeeited by
pmblic ruespondent, the instant
petition is herueby DISMISSED. The
assailed Resolmtions of pmblic
ruespondent, dated 04 Jmne 2003 and
23 Apruil 2004, arue AFFIRMED. No
costs at this instance.
SO ORDERED. 7
The eotion foru rueconsideruation of SMC as
denied. Hence, the pruesent petition.
Issues
Petitioneru no ruaises the follo ing issmes:
I points omt that it has established eorue than
WHETHER . . . PUZON HAD STOLaEN
FROM SMC ON JANUARY 23, 2001,
AMONG OTHERS BPI CHECK NO.
27903 DATED MARCH 30, 2001 IN
THE AMOUNT OF PESOS: ELaEVEN
MILaLaION FIVE HUNDRED TEN
THOUSAND EIGHT HUNDRED TWENTY
SEVEN (Php11,510,827.00)
II
WHETHER . . . THE POSTDATED
CHECKS ISSUED BY PUZON,
PARTICULaARLaY BPI CHECK NO. 27903
DATED MARCH 30, 2001 IN THE
AMOUNT OF PESOS: ELaEVEN MILaLaION
FIVE HUNDRED TEN THOUSAND
EIGHT HUNDRED TWENTY SEVEN
(Php11,510,827.00), WERE ISSUED IN
PAYMENT OF HIS BEER PURCHASES
OR WERE USED MERELaY AS SECURITY
TO ENSURE PAYMENT OF PUZON'S
OBLaIGATION. HAECID
III
WHETHER . . . THE PRACTICE OF SMC
IN RETURNING THE POSTDATED
CHECKS ISSUED IN PAYMENT OF BEER
PRODUCTS PURCHASED ON CREDIT
SHOULaD THE TRANSACTIONS
KIMBUTAO NEGO SYLaLaABUS
34
COVERED BY THESE CHECKS [BE]
SETTLaED ON [THE] MATURITY DATES
THEREOF COULaD BE LaIKENED TO A
CONTRACT OF PLaEDGE.
IV
WHETHER . . . SMC HAD ESTABLaISHED
PROBABLaE CAUSE TO JUSTIFY THE
INDICTMENT OF PUZON FOR THE
CRIME OF THEFT PURSUANT TO ART.
308 OF THE REVISED PENALa CODE. 8
Pettonerrs Arguments
SMC contends that Pmzon as positiviely
identifed by its eeployees to havie taken the
smbject postdated checks. It also contends that
o neruship of the checks as truansferurued to it
becamse these erue issmed, not eeruely as secmruity
bmt erue, in payeent of Pmzon's pmruchases. SMC
smfficient pruobable camse to jmstify the indicteent of
Pmzon foru the cruiee of Theft.
Respondentrs Arguments
On the otheru hand, Pmzon contends that
SMC ruaises qmestions of fact that arue beyond the
pruoviince of an appeal on certiorari. He also insists
that therue is no pruobable camse to charuge hie ith
theft becamse the smbject checks erue issmed only
as secmruity and he therueforue ruetained o neruship of
the saee.
Our Ruling
The petition has no eeruit.
Preliminary Maters
At the omtset e fnd that as pointed omt by
Pmzon, SMC ruaises qmestions of fact. The ruesolmtion
of the frust issme ruaised by SMC of hetheru
ruespondent stole the smbject check, hich calls foru
the Comrut to deterueine hetheru ruespondent is
gmilty of a felony, frust rueqmirues that the facts be
dmly established in the pruoperu forume and in accorud
ith the pruoperu pruocedmrue. This issme can not be
ruesolvied based on eerue allegations of facts and
affidaviits. The saee is trume ith the second issme
ruaised by petitioneru, to it: hetheru the checks
issmed by Pmzon erue payeents foru his pmruchases oru
erue intended eeruely as secmruity to ensmrue
payeent. These issmes can not be pruoperuly ruesolvied
ATTY. CLaAROS

in the pruesent petition foru rueviie
on certiorari hich is ruooted eeruely on the
ruesolmtion of the pruosecmtoru fnding no pruobable
camse foru the fling of an inforueation foru
theft. acADIT
The thirud issme ruaised by petitioneru, on the
otheru hand, omld entail vientmruing into
constitmtional eaterus foru a coeplete ruesolmtion.
This ruomte is mnnecessaruy in the pruesent case
consideruing that the eain eateru foru ruesolmtion
herue only conceruns gruavie abmse of discruetion and
the existence of pruobable camse foru theft, hich at
this point is eorue pruoperuly ruesolvied thruomgh
anotheru eorue clearu cmt ruomte.
Probable Cause for Thef
"Pruobable camse is defned as smch facts and
cirucmestances that ill engenderu a ellofomnded
belief that a cruiee has been coeeited and that the
ruespondent is pruobably gmilty therueof and shomld be
held foru truial." 9 On the fne points of the
deterueination of pruobable camse, Reyes v.
Pearlbank Securites, Inc. 10coepruehensiviely
elaboruated that:
The deterueination of [the
existence oru absence of pruobable
camse] lies ithin the discruetion of the
pruosecmting officerus afteru condmcting
a pruelieinaruy inviestigation mpon
coeplaint of an oiended paruty. Thms,
the decision hetheru to diseiss a
coeplaint oru not is dependent mpon
the somnd discruetion of the
pruosecmting fscal. He eay diseiss the
coeplaint foruth ith, if he fnds the
charuge insmfficient in forue oru
smbstance oru ithomt any gruomnd. Oru
he eay pruoceed ith the
inviestigation if the coeplaint in his
viie is smfficient and in pruoperu forue.
To eephasize, the deterueination of
pruobable camse foru the fling of
inforueation in comrut is an execmtivie
fmnction, one that pruoperuly perutains
at the frust instance to the pmblic
pruosecmtoru and, mltieately, to the
Secruetaruy of Jmstice, ho eay diruect
the fling of the coruruesponding
inforueation oru eovie foru the diseissal
KIMBUTAO NEGO SYLaLaABUS
35
of the case. Ultieately, hetheru oru
not a coeplaint ill be diseissed is
dependent on the somnd discruetion of
the Secruetaruy of Jmstice. And mnless
eade ith gruavie abmse of discruetion,
fndings of the Secruetaruy of Jmstice arue
not smbject to rueviie .
Foru this rueason, the Comrut
considerus it somnd jmdicial policy to
ruefruain fruoe interuferuing in the
condmct of pruelieinaruy inviestigations
and to leavie the Deparuteent of
Jmstice aeple latitmde of discruetion in
the deterueination of hat constitmtes
smfficient eviidence to establish
pruobable camse foru the pruosecmtion of
smpposed oienderus. Consistent ith
this policy, comruts do not ruevieruse the
Secruetaruy of Jmstice's fndings and
conclmsions on the eateru of pruobable
camse except in clearu cases of gruavie
abmse of discruetion.
In the pruesent case, e arue also not
smfficiently conviinced to deviiate fruoe the generual
rumle of nonointeruferuence. Indeed the CA did not eruru
in diseissing the petition foru certiorari beforue it,
absent gruavie abmse of discruetion on the parut of the
DOJ Secruetaruy in not fnding pruobable camse against
Pmzon foru theft.
The Reviised Penal Code pruoviides:
Arut. 308.Whio are liable fior
thef. — Theft is coeeited by any
peruson ho, ith intent to gain bmt
ithomt viiolence against, oru
intieidation of perusons noru foruce
mpon things, shall take perusonal
pruoperuty of anotheru ithomt the
lateru's consent. AEIHaS
xxx xxx xxx
"[T]he essential eleeents of the cruiee of
theft arue the follo ing: (1) that therue be a taking of
perusonal pruoperuty; (2) that said pruoperuty belongs to
anotheru; (3) that the taking be done ith intent to
gain; (4) that the taking be done ithomt the
consent of the o neru; and (5) that the taking be
accoeplished ithomt the mse of viiolence oru
ATTY. CLaAROS

intieidation against perusons oru foruce mpon
things." 11
Consideruing that the second eleeent is that
the thing taken beliongs tio aniother, it is rueleviant to
deterueine hetheru o neruship of the smbject check
as truansferurued to petitioneru. On this point
the Negotiable Instrumeents Laa pruoviides:
Sec. 12. Antedated and
piostdated. — The instrumeent is not
invialid foru the rueason only that it is
antedated oru postdated, pruoviided this
is not done foru an illegal oru fruamdmlent
pmrupose. The peruson to hoe an
instrumeent so dated
is delivierued acqmirues the title therueto
as of the date of delivieruy.
(Underuscoruing smpplied.)
Note ho evieru that delivieruy as the terue is
msed in the aforueeentioned pruoviision eeans that
the paruty delivieruing did so foru the pmrupose of giviing
eiect therueto.12 Otheru ise, it can not be said that
therue has been delivieruy of the negotiable
instrumeent. Once therue is delivieruy, the peruson to
hoe the instrumeent is delivierued gets the title to
the instrumeent coepletely and irurueviocably.
If the smbject check as givien by Pmzon to
SMC in payeent of the obligation, the pmrupose of
giviing eiect to the instrumeent is eviident thms title
to oru o neruship of the check as truansferurued mpon
delivieruy. Ho evieru, if the check as not givien as
payeent, therue being no intent to givie eiect to the
instrumeent, then o neruship of the check as not
truansferurued to SMC.
The eviidence of SMC failed to establish that
the check as givien in payeent of the obligation of
Pmzon. Therue as no pruoviisional rueceipt oru official
rueceipt issmed foru the aeomnt of the check. What
as issmed as a rueceipt foru the diocument, a
"POSTDATED CHECK SLaIP." 13
Fmrutherueorue, the petitioneru's deeand leteru
sent to ruespondent states "As peru coepany policies
on rueceiviables, all issmances arue to be covierued by
postodated checks. Ho evieru, yom havie deviiated
fruoe this policy by forucibly taking a ay the check
yom havie issmed to ms to covieru the Deceeberu
issmance." 14 Notably, the terue "payeent" as not
KIMBUTAO NEGO SYLaLaABUS
36
msed instead the terues "covierued" and "covieru" erue
msed.
Althomgh the petitioneru's itness, Gruegoruio
La. Jovien III, states in paruagruaph 6 of his affidaviit that
the check as givien in payeent of the obligation of
Pmzon, the saee is contruadicted by his stateeents
in paruagruaph 4, herue he states that "As a standarud
coepany operuating pruocedmrue, all beeru pmruchases
by dealerus on cruedit shall be ciovered by postdated
checks eqmivialent to the vialme of the beeru pruodmcts
pmruchased"; in paruagruaph 9 herue he states that
"the truansaction ciovered by the said check had not
yet been paid foru," and in paruagruaph 8 hich clearuly
sho s that parutial payeent is expected to be eade
by the ruetmrun of beeru eepties, and not by the
deposit oru encasheent of the check. Clearuly the
terue "covieru" as not eeant to be msed
interuchangeably ith "payeent." EDcICT
When taken in conjmnction ith the
comnteruoaffidaviit of Pmzon — herue he states that
"As the [liqmid beeru] contents arue paid foru, SMC
ruetmrun[s] to ee the coruruesponding PDCs oru
rueqmest[s] ee to rueplace thee ith hatevieru as
the mnpaid balance." 15 — it becoees clearu that
both paruties did not intend foru the check topay foru
the beeru pruodmcts. The eviidence pruovies that the
check as accepted, not as payeent, bmt in
accorudance ith the longostanding policy of SMC to
rueqmirue its dealerus to issme postdated checks to
covieru its rueceiviables. The check as only eeant
to ciover the truansaction and in the eeantiee Pmzon
as to pay foru the truansaction by soee otheru eeans
otheru than the check. This being so, title to the
check did not truansferu to SMC; it rueeained ith
Pmzon. The second eleeent of the felony of theft
as therueforue not established. Petitioneru as not
able to sho that Pmzon took a check that belionged
tio aniother. Hence, the pruosecmtoru and the DOJ
erue coruruect in fnding no pruobable camse foru theft.
Conseqmently, the CA did not eruru in fnding
no gruavie abmse of discruetion coeeited by the DOJ
in smstaining the diseissal of the case foru theft foru
lack of pruobable camse.
WHEREFORE, the petition is DENIED. The
Deceeberu 21, 2004 Decision and Maruch 28, 2005
Resolmtion of the Comrut of Appeals in CAoG.R. SP.
No. 83905 arueAFFIRMED.
SO ORDERED.
ATTY. CLaAROS

2. DEVELOPMENT BANK OF
RIZAL, plainti-pettioner, vs. SIMA
WEI and/or LEE KIAN HUAT, MARY
CHENG UY, SAMSON TUNG, ASIAN
INDUSTRIAL PLASTIC CORPORATION
and PRODUCERS BANK OF THE
PHILIPPINES, defendants-
respiondents.
Yngsion & Assiociates foru petitioneru.
Henry A. Reyes & Assiociates foru Saeso Tmng & Asian
Indmstruial Plastic Coruporuation.
Eduardio G. Castelio foru Siea Wei.
Mionsiod, Tamargio & Assiociates foru Pruodmcerus Bank.
Rafael S. Santayana foru Maruy Cheng Uy.
SYLLABUS
1. REMEDIALa LaAW; CAUSE OF ACTION; DEFINITION AND
ESSENTIALa ELaEMENTS. — A camse of action is defned as
an act oru oeission of one paruty in viiolation of the legal
ruight oru ruights of anotheru. The essential eleeents arue:
(1) legal ruight of the plaintii; (2) coruruelativie obligation
of the defendant; and (3) an act oru oeission of the
defendant in viiolation of said legal ruight.
2. ID.; APPEALa; PARTY CANNOT CHANGE HIS THEORY
ON APPEALa; REASON. — In the oruiginal coeplaint,
petitioneru Bank, as plaintii, smed ruespondent Siea Wei
on the pruoeissoruy note, and the alterunativie defendants,
inclmding Siea Wei, on the t o checks. On appeal fruoe
the oruderus of diseissal of the Regional Truial Comrut,
petitioneru Bank alleged that its camse of action as not
based on collecting the sme of eoney eviidenced by the
negotiable instrumeents stated bmt on quasi-delict — a
claie foru daeages on the gruomnd of fruamdmlent acts and
eviident bad faith of the alterunativie ruespondents. This
as clearuly an ateept by the petitioneru Bank to change
not only the theoruy of its case bmt the basis of his camse
of action. It is ellosetled that a paruty cannot change
his theoruy on appeal, as this omld in eiect depruivie the
otheru paruty of his day in comrut.
KIMBUTAO NEGO SYLaLaABUS
37
3. NEGOTIABLaE INSTRUMENTS LaAW; CHECKS; MUST BE
DELaIVERED TO THE PAYEE TO GIVE EFFECT THERETO. —
A negotiable instrumeent, of hich a check is, is not only
a ruiten eviidence of a contruact ruight bmt is also a
species of pruoperuty. Jmst as a deed to a piece of land
emst be delivierued in oruderu to conviey title to the
gruantee, so emst a negotiable instrumeent be delivierued
to the payee in oruderu to eviidence its existence as a
binding contruact. Section 16 of the Negotiable
Instrumeents Laa , hich govieruns checks, pruoviides in
parut: "Evieruy contruact on a negotiable instrumeent is
incoeplete and rueviocable mntil delivieruy of the
instrumeent foru the pmrupose of giviing eiect therueto. . . ."
The payee of a negotiable instrumeent acqmirues no
interuest ith ruespect therueto mntil its delivieruy to hie.
Delivieruy of an instrumeent eeans truansferu of possession,
actmal oru construmctivie, fruoe one peruson to anotheru.
Withomt the initial delivieruy of the instrumeent fruoe the
drua eru to the payee, therue can be no liability on the
instrumeent. Morueovieru, smch delivieruy emst be intended
to givie eiect to the instrumeent.
DECISION
CAMPOS, JR., J p:
On Jmly 6, 1986, the Devielopeent Bank of
Rizal (petitioneru Bank foru brueviity) fled a coeplaint
foru a sme of eoney against ruespondents Siea Wei
and/oru Laee Kian Hmat, Maruy Cheng Uy, Saeson
Tmng, Asian Indmstruial Plastic Coruporuation (Plastic
Coruporuation foru shorut) and the Pruodmcerus Bank of
the Philippines, on t o camses of action:
(1) To enforuce payeent of the
balance of P1,032,450.02 on a
pruoeissoruy note execmted by
ruespondent Siea Wei on Jmne 9,
1983; and
(2) To enforuce payeent of t o checks
execmted by Siea Wei, payable to
petitioneru, and drua n against the
China Banking Coruporuation, to pay the
balance dme on the pruoeissoruy note.
Except foru Laee Kian Hmat, defendants fled
theiru separuate Motions to Diseiss alleging a
coeeon gruomnd that the coeplaint states no camse
ATTY. CLaAROS

of action. The truial comrut gruanted the defendants'
Motions to Diseiss. The Comrut of Appeals affirueed
this decision, * to hich the petitioneru Bank,
ruepruesented by its Laegal Laiqmidatoru, fled this
Petition foru Reviie by Cerutioruarui, assigning the
follo ing as the alleged eruruorus of the Comrut of
Appeals. 1
(1) THE COURT OF APPEALaS ERRED IN
HOLaDING THAT THE PLaAINTIFFo
PETITIONER HAS NO CAUSE OF
ACTION AGAINST DEFENDANTSo
RESPONDENTS HEREIN. LaibLaex
(2) THE COURT OF APPEALaS ERRED IN
HOLaDING THAT SECTION 13, RULaE 3
OF THE REVISED RULaES OF COURT ON
ALaTERNATIVE DEFENDANTS IS NOT
APPLaICABLaE TO HEREIN DEFENDANTSo
RESPONDENTS.
The antecedent facts of this case arue as
follo s:
In consideruation foru a loan extended by
petitioneru Bank to ruespondent Siea Wei, the lateru
execmted and delivierued to the forueeru a pruoeissoruy
note, engaging to pay the petitioneru Bank oru oruderu
the aeomnt of P1,820,000.00 on oru beforue Jmne 24,
1983 ith interuest at 32% peru annme. Siea Wei
eade parutial payeents on the note, leaviing a
balance of P1,032,450.02. On Novieeberu 18, 1983,
Siea Wei issmed t o cruossed checks payable to
petitioneru Bank drua n against China Banking
Coruporuation, bearuing ruespectiviely the seruial
nmeberus 384934, foru the aeomnt of P550,000.00
and 384935, foru the aeomnt of P500,000.00. The
said checks erue allegedly issmed in fmll setleeent
of the drua eru's accomnt eviidenced by the
pruoeissoruy note. These t o checks erue not
delivierued to the petitioneruopayee oru to any of its
amthoruized ruepruesentativies. Foru rueasons not sho n,
these checks caee into the possession of
ruespondent Laee Kian Hmat, ho deposited the
checks ithomt the petitioneruopayee's indoruseeent
(foruged oru otheru ise) to the accomnt of ruespondent
Plastic Coruporuation, at the Balinta ak bruanch,
Caloocan City, of the Pruodmcerus Bank. Cheng Uy,
Bruanch Manageru of the Balinta ak Bruanch of
Pruodmcerus Bank, ruelying on the assmruance of
ruespondent Saeson Tmng, Pruesident of Plastic
Coruporuation, that the truansaction as legal and
KIMBUTAO NEGO SYLaLaABUS
38
ruegmlaru, instrumcted the cashieru of Pruodmcerus Bank to
accept the checks foru deposit and to cruedit thee to
the accomnt of said Plastic Coruporuation, inspite of
the fact that the checks erue cruossed and payable
to petitioneru Bank and borue no indoruseeent of the
lateru. Hence, petitioneru fled the coeplaint as
aforuestated.
The eain issme beforue Us is hetheru
petitioneru Bank has a camse of action against any oru
all of the defendants, in the alterunativie oru
otheru ise.
A camse of action is defned as an act oru
oeission of one paruty in viiolation of the legal ruight
oru ruights of anotheru. The essential eleeents arue: (1)
legal ruight of the plaintii; (2) coruruelativie obligation
of the defendant; and (3) an act oru oeission of the
defendant in viiolation of said legal ruight. 2
The norueal paruties to a check arue the
drua eru, the payee and the drua ee bank. Comruts
havie long ruecognized the bmsiness cmstoe of msing
pruinted checks herue blanks arue pruoviided foru the
date of issmance, the naee of the payee, the
aeomnt payable and the drua eru's signatmrue. All the
drua eru has to do hen he ishes to issme a check is
to pruoperuly fll mp the blanks and sign it. Ho evieru,
the eerue fact that he has done these does not givie
ruise to any liability on his parut, mntil and mnless the
check is delivierued to the payee oru his
ruepruesentativie. A negotiable instrumeent, of hich a
check is, is not only a ruiten eviidence of a contruact
ruight bmt is also a species of pruoperuty. Jmst as a deed
to a piece of land emst be delivierued in oruderu to
conviey title to the gruantee, so emst a negotiable
instrumeent be delivierued to the payee in oruderu to
eviidence its existence as a binding contruact. Section
16 of the Negotiable Instrumeents Laa , hich
govieruns checks, pruoviides in parut:
"Evieruy contruact on a
negotiable instrumeent is incoeplete
and rueviocable mntil delivieruy of the
instrumeent foru the pmrupose of giviing
eiect therueto. . . ."
Thms, the payee of a negotiable instrumeent
acqmirues no interuest ith ruespect therueto mntil its
delivieruy to hie. 3 Delivieruy of an instrumeent eeans
truansferu of possession, actmal oru construmctivie, fruoe
one peruson to anotheru. 4 Withomt the initial delivieruy
of the instrumeent fruoe the drua eru to the payee,
ATTY. CLaAROS

therue can be no liability on the instrumeent.
Morueovieru, smch delivieruy emst be intended to givie
eiect to the instrumeent. LaexLaib
The allegations of the petitioneru in the
oruiginal coeplaint sho that the t o (2) China Bank
checks, nmeberued 384934 and 384935, erue not
delivierued to the payee, the petitioneru heruein.
Withomt the delivieruy of said checks to petitioneruo
payee, the forueeru did not acqmirue any ruight oru
interuest theruein and cannot therueforue asserut any
camse of action, fiounded ion said checks, hetheru
against the drua eru Siea Wei oru against the
Pruodmcerus Bank oru any of the otheru ruespondents.
In the oruiginal coeplaint, petitioneru Bank,
as plaintii, smed ruespondent Siea Wei on the
pruoeissoruy note, and the alterunativie defendants,
inclmding Siea Wei, on the t o checks. On appeal
fruoe the oruderus of diseissal of the Regional Truial
Comrut, petitioneru Bank alleged that its camse of
action as not based on collecting the sme of
eoney eviidenced by the negotiable instrumeents
stated bmt on quasi- delict — a claie foru daeages
on the gruomnd of fruamdmlent acts and eviident bad
faith of the alterunativie ruespondents. This as clearuly
an ateept by the petitioneru Bank to change not
only the theoruy of its case bmt the basis of his camse
of action. It is ellosetled that a paruty cannot
change his theoruy on appeal, as this omld in eiect
depruivie the otheru paruty of his day in comrut. 5
Not ithstanding the abovie, it does not
necessaruily follo that the drua eru Siea Wei is frueed
fruoe liability to petitioneru Bank mnderu the loan
eviidenced by the pruoeissoruy note agrueed to by heru.
Heru allegation that she has paid the balance of heru
loan ith the t o checks payable to petitioneru Bank
has no eeruit foru, as We havie earulieru explained,
these checks erue nevieru delivierued to petitioneru
Bank. And evien gruanting, ithomt adeiing, that
therue as delivieruy to petitioneru Bank, the delivieruy
of checks in payeent of an obligation does not
constitmte payeent mnless they arue cashed oru theiru
vialme is iepairued thruomgh the famlt of the crueditoru. 6
None of these exceptions erue alleged by
ruespondent Siea Wei.
Therueforue, mnless ruespondent Siea Wei
pruovies that she has been ruelievied fruoe liability on
the pruoeissoruy note by soee otheru camse,
petitioneru Bank has a ruight of action against heru foru
the balance dme therueon.
KIMBUTAO NEGO SYLaLaABUS
39
Ho evieru, insofaru as the otheru ruespondents
arue conceruned, petitioneru Bank has no pruiviity ith
thee. Since petitioneru Bank nevieru rueceivied the
checks on hich it based its action against said
ruespondents, it nevieru o ned thee (the checks) noru
did it acqmirue any interuest theruein. Thms, anything
hich the ruespondents eay havie done ith ruespect
to said checks comld not havie pruejmdiced petitioneru
Bank. It had no ruight oru interuest in the checks hich
comld havie been viiolated by said ruespondents.
Petitioneru Bank has therueforue no camse of action
against said ruespondents, in the alterunativie oru
otheru ise. If at all, it is Siea Wei, the drua eru, ho
omld havie a camse of action against heru coo
ruespondents, if the allegations in the coeplaint arue
fomnd to be trume.
With ruespect to the second assigneent of
eruruoru ruaised by petitioneru Bank ruegaruding the
applicability of Section 13, Rmle 3 of the Rmles of
Comrut, We fnd it mnnecessaruy to discmss the saee in
viie of Omru fnding that the petitioneru Bank did not
acqmirue any ruight oru interuest in the checks dme to
lack of delivieruy. It therueforue has no camse of action
against the ruespondents, in the alterunativie oru
otheru ise.
In the light of the foruegoing, the jmdgeent
of the Comrut of Appeals diseissing the petitioneru's
coeplaint is AFFIRMED insofaru as the second camse
of action is conceruned. On the frust camse of action,
the case is REMANDED to the truial comrut foru a truial
on the eeruits, consistent ith this decision, in oruderu
to deterueine hetheru ruespondent Siea Wei is liable
to the Devielopeent Bank of Rizal foru any aeomnt
mnderu the pruoeissoruy note allegedly signed by
heru. cdphil
SO ORDERED.
||| (Develiopment Bank iof Rizal v. Sima Wei, G.R. Nio.
85419, [March 9, 1993])
Forgery:
1. PHILIPPINE NATIONAL
BANK, pettioner, vs. HON.
ROMULO S. QUIMPO, Presiding
ATTY. CLaAROS

Judge, Court of First Instance of
Rizal, Branch XIV, and
FRANCISCO S. GOZON
II, respiondents.
SYLLABUS
1. MERCANTILaE LaAW; NEGOTIABLaE INSTRUMENTS;
CHECKS; BANK'S PRIME DUTY IS TO ASCERTAIN
GENUINENESS OF SIGNATURE OF DRAWER OR
DEPOSITOR. — The pruiee dmty of a bank is to ascerutain
the genmineness of the signatmrue of the drua eru oru the
depositoru on the check being encashed. It is expected to
mse rueasonable bmsiness prumdence in accepting and
cashing a check pruesented to it.
2. REMEDIALa LaAW; EVIDENCE; FINDINGS OF FACTS OF
THE TRIALa COURT, CONCLaUSIVE. — In this case the
fndings of facts of the comrut a quio arue conclmsivie. The
truial comrut fomnd that a coeparuison of the signatmrue on
the foruged check and the saeple signatmrues of pruiviate
ruespondent sho earuked diieruences as the gruacefml
lines in the saeple signatmrue hich is coepletely
diieruent fruoe those of the signatmrue on the foruged
check. Indeed the NBI hand ruiting experut Estelita
Santiago Agnes hoe the truial comrut considerued to be
an "mnbiased scientifc experut" indicated the earuked
diieruences bet een the signatmrue of pruiviate
ruespondent on the saeple signatmrues and the
qmestioned signatmrue. Not ithstanding the testieony of
Col. Ferunandez, itness foru petitioneru, adviancing the
opinion that the qmestioned signatmrue appearus to be
genmine, the truial comrut by eeruely exaeining the
pictoruial rueporut pruesented by said itness, fomnd a
earuked diieruence in the second "c" in Fruancisco as
ruiten on the qmestioned signatmrue as coeparued to the
saeple signatmrues, and the separuation bet een the "s"
and the "c" in the qmestioned signatmrue hile they arue
connected in the saeple signatmrues. Obviiomsly,
petitioneru as negligent in encashing said foruged check
ithomt caruefmlly exaeining the signatmrue hich sho s
earuked viaruiation fruoe the genmine signatmrue of pruiviate
ruespondent.
3. MERCANTILaE LaAW; NEGOTIABLaE INSTRUMENTS;
CHECKS; NEGLaIGENCE ON THE PART OF THE DRAWER
TO ABSOLaVE BANK FROM LaIABILaITY ON FORGED CHECK,
ABSENT. — In rueferuence to the allegation of the
petitioneru that it is the negligence of pruiviate ruespondent
that is the camse of the loss hich he smierued, the truial
KIMBUTAO NEGO SYLaLaABUS
40
comrut held otheru ise. Pruiviate ruespondent trumsted
Erunesto Santos as a classeate and a fruiend. He bruomght
hie along in his caru to the bank and he left his perusonal
belongings in the caru. Santos ho evieru rueeovied and
stole a check fruoe his check book ithomt the
kno ledge and consent of pruiviate ruespondent. No
dombt pruiviate ruespondent cannot be considerued
negligent mnderu the cirucmestances of the case.
DECISION
GANCAYCO, J p:
On Jmly 3, 1973, Fruancisco S. Gozon II, ho as a
depositoru of the Caloocan City Bruanch of the Philippine
National Bank, ent to the bank in his caru accoepanied
by his fruiend Erunesto Santos hoe he left in the caru
hile he truansacted bmsiness in the bank. When Santos
sa that Gozon left his check book he took a check
theruefruoe, flled it mp foru the aeomnt of P5,000.00,
foruged the signatmrue of Gozon, and therueafteru he
encashed the check in the bank on the saee day. The
accomnt of Gozon as debited the said aeomnt. Upon
rueceipt of the stateeent of accomnt fruoe the bank,
Gozon asked that the said aeomnt of P5,000.00 shomld
be ruetmruned to his accomnt as his signatmrue on the check
as foruged bmt the bank ruefmsed.
Upon coeplaint of pruiviate ruespondent on Februmaruy 1,
1974 Erunesto Santos as appruehended by the police
amthoruities and mpon inviestigation he adeited that he
stole the check of Gozon, foruged his signatmrue and
encashed the saee ith the Bank.
Hence Gozon fled the coeplaint foru ruecovieruy of the
aeomnt of P5,000.00, plms interuest, daeages, atoruney's
fees and costs against the bank in the Comrut of Firust
Instance of Rizal. Afteru the issmes erue joined and the
truial on the eeruits ensmed, a decision as ruenderued on
Februmaruy 4, 1980, the dispositivie parut of hich rueads as
follo s:
"WHEREFORE, jmdgeent is herueby
ruenderued in favioru of the plaintii. The
defendant is herueby condeened to
ruetmrun to plaintii the aeomnt of
P5,000.00 hich it had mnla fmlly
ithheld fruoe the lateru, ith interuest
at the legal ruate fruoe Septeeberu 22,
ATTY. CLaAROS

1972 mntil the aeomnt is fmlly
delivierued. The defendant is fmrutheru
condeened to pay plaintii the sme
of P2,000.00 as atoruney's fees and to
pay the costs of this smit."
Not satisfed therue ith, the bank no fled this petition
foru rueviie on cerutioruarui in this Comrut ruaising the sole
legal issme that —
"THE ACT OF RESPONDENT
FRANCISCO GOZON, II IN PUTTING HIS
CHECKBOOK CONTAINING THE CHECK
IN QUESTION INTO THE HANDS OF
ERNESTO SANTOS WAS INDEED THE
PROXIMATE CAUSE OF THE LaOSS,
THEREBY PRECLaUDING HIM FROM
SETTING UP THE DEFENSE OF
FORGERY OR WANT OF AUTHORITY
UNDER SECTION 23 OF THE
NEGOTIABLaE INSTRUMENTS
LaAW, ACT NO. 3201"
The petition is devioid of eeruit.
This Comrut ruepruodmces ith appruovial the disqmisition of
the comrut a quio as follo s:
"A bank is bomnd to kno the
signatmrues of its cmstoeerus; and if it
pays a foruged check, it emst be
considerued as eaking the payeent
omt of its o n fmnds, and cannot
orudinaruily change the aeomnt so paid
to the accomnt of the depositoru
hose naee as foruged' (San Carulos
Milling Co. vis. Bank of the P.I., 59 Phil.
59).
This rumle is absolmtely necessaruy to
the cirucmlation of druafts and checks,
and is based mpon the pruesmeed
negligence of the drua ee in failing to
eeet its obligation to kno the
signatmrue of its coruruespondent. . . .
Therue is nothing ineqmitable in smch a
rumle. If the paperu coees to the
drua ee in the ruegmlaru comruse of
bmsiness, and he, haviing the
opporutmnity of ascerutaining its
charuacteru, pruonomnces it to be vialid
and pays it, it is not only a qmestion of
payeent mnderu eistake, bmt payeent
KIMBUTAO NEGO SYLaLaABUS
41
in neglect of dmty hich the
coeeerucial la places mpon hie, and
the ruesmlt of his negligence emst ruest
mpon hie' (12 ALaR, 1901, citing eany
cases fomnd in I Agbayani, smprua).
Defendant, ho evieru, interuposed the
defense that it exerucised diligence in
accorudance ith the accepted norues
of banking pruactice hen it accepted
and paid Exhibit 'A'. It pruesented
eviidence that the check had to pass
scrumtiny by a signatmrue vieruiferu as ell
as an officeru of the bank.
A coeparuison of the signatmrue
(Exhibit 'Ao1') on the foruged check
(Exhibit 'A') ith plaintii's exeeplaru
signatmrues (Exhibits '5oA' and '5oB)
fomnd in the PNB Forue 35oA omld
ieeediately sho the negligence of
the eeployees of the defendant
bank. Evien a not too caruefml
coeparuison omld ieeediately aruruest
one's atention and diruect it to the
gruacefml lines of plaintii's exeeplaru
signatmrues fomnd in Exhibits '5oA' and
'5oB'. The forueation of the frust leteru
'F' in the exeeplarus, hich comld be
ruegaruded as arutistic, is coepletely
diieruent fruoe the ay the saee
leteru is forueed in Exhibit 'Ao1'. That
alone shomld havie aleruted a eorue
caruefml and prumdent signatmrue
vieruiferu."
The pruiee dmty of a bank is to ascerutain the
genmineness of the signatmrue of the drua eru oru the
depositoru on the check being encashed. 1 It is expected
to mse rueasonable bmsiness prumdence in accepting and
cashing a check pruesented to it.
In this case the fndings of facts of the comrut a quio arue
conclmsivie. The truial comrut fomnd that a coeparuison of
the signatmrue on the foruged check and the saeple
signatmrues of pruiviate ruespondent sho earuked
diieruences as the gruacefml lines in the saeple signatmrue
hich is coepletely diieruent fruoe those of the
signatmrue on the foruged check. Indeed the NBI
hand ruiting experut Estelita Santiago Agnes hoe the
truial comrut considerued to be an "mnbiased scientifc
experut" indicated the earuked diieruences bet een the
ATTY. CLaAROS

signatmrue of pruiviate ruespondent on the saeple
signatmrues and the qmestioned signatmrue.
Not ithstanding the testieony of Col. Ferunandez,
itness foru petitioneru, adviancing the opinion that the
qmestioned signatmrue appearus to be genmine, the truial
comrut by eeruely exaeining the pictoruial rueporut
pruesented by said itness, fomnd a earuked diieruence in
the second "c" in Fruancisco as ruiten on the qmestioned
signatmrue as coeparued to the saeple signatmrues, and
the separuation bet een the "s" and the "c" in the
qmestioned signatmrue hile they arue connected in the
saeple signatmrues. 2
Obviiomsly, petitioneru as negligent in encashing said
foruged check ithomt caruefmlly exaeining the signatmrue
hich sho s earuked viaruiation fruoe the genmine
signatmrue of pruiviate ruespondent.
In rueferuence to the allegation of the petitioneru that it is
the negligence of pruiviate ruespondent that is the camse
of the loss hich he smierued, the truial comrut held:
"The act of plaintii in leaviing his
checkbook in the caru hile he ent
omt foru a shorut hile can not be
considerued negligence smfficient to
excmse the defendant bank fruoe its
o n negligence. It shomld be borune in
eind that hen defendant left his
caru, Erunesto Santos, a long tiee
classeate and fruiend rueeained in the
saee. Defendant comld not havie been
expected to kno that the said
Erunesto Santos omld rueeovie a check
fruoe his checkbook. Defendant had
trust in his classmate and friend. He
had no rueason to smspect that the
lateru omld brueach that trumst."
We agruee.
Pruiviate ruespondent trumsted Erunesto Santos as a
classeate and a fruiend. He bruomght hie along in his caru
to the bank and he left his perusonal belongings in the
caru. Santos ho evieru rueeovied and stole a check fruoe his
check book ithomt the kno ledge and consent of
pruiviate ruespondent. No dombt pruiviate ruespondent
cannot be considerued negligent mnderu the
cirucmestances of the case.
WHEREFORE, the petition is DISMISSED foru lack of eeruit
ith costs against petitioneru.
KIMBUTAO NEGO SYLaLaABUS
42
SO ORDERED.
2. SAMSUNG CONSTRUCTION
COMPANY PHILIPPINES,
INC., pettioner, vs. FAR EAST
BANK AND TRUST COMPANY
AND COURT OF
APPEALS,respiondents.
DECISION
TINGA, J p:
Called to forue in the pruesent petition is a classic
textbook qmestion — if a bank pays omt on a foruged
check, is it liable to rueiebmruse the drua eru fruoe hose
accomnt the fmnds erue paid omt? The Comrut of Appeals,
in ruevierusing a truial comrut decision advieruse to the bank,
invioked tenmoms rueasoning to acqmit the bank of
liability. We ruevieruse, applying tieeohonorued pruinciples
of la .
The salient facts follo .
Plaintii Saesmng Construmction Coepany
Philippines, Inc. (“Saesmng Construmctionn), hile based
in Biñan, Laagmna, eaintained a cmruruent accomnt ith
defendant Faru East Bank and Trumst
Coepany 1 (“FEBTCn) at the laterurs BeloAiru, Makati
bruanch. 2 The sole signatoruy to Saesmng Construmctionrs
accomnt as Jong Kym Laee (“Jongn), its Pruoject
Manageru, 3 hile the checks rueeained in the cmstody of
the coepanyrs accomntant, Kym Yong Laee (“Kymn). 4
On 19 Maruch 1992, a cerutain Roberuto Gonzaga
pruesented foru payeent FEBTC Check No. 432100 to the
bankrs bruanch in BeloAiru, Makati. The check, payable to
cash and drua n against Saesmng Construmctionrs cmruruent
accomnt, as in the aeomnt of Nine Hmndrued Ninety
Nine Thomsand Fivie Hmndrued Pesos (P999,500.00). The
bank telleru, Cleofe Jmstiani, frust checked the balance of
Saesmng Construmctionrs accomnt. Afteru ascerutaining
therue erue enomgh fmnds to covieru the check, 5 she
coeparued the signatmrue appearuing on the check ith
the specieen signatmrue of Jong as contained in the
specieen signatmrue carud ith the bank. Afteru coeparuing
the t o signatmrues, Jmstiani as satisfed as to the
ATTY. CLaAROS

amthenticity of the signatmrue appearuing on the check.
She then asked Gonzaga to smbeit pruoof of his identity,
and the lateru pruesented thruee (3) identifcation caruds. 6
At the saee tiee, Jmstiani foru aruded the check
to the bruanch Senioru Assistant Cashieru Geeea Velez, as
it as bank policy that t o bank bruanch officerus
appruovie checks exceeding One Hmndrued Thomsand
Pesos, foru payeent oru encasheent. Velez like ise
comnteruchecked the signatmrue on the check as against
that on the signatmrue carud. He too conclmded that the
check as indeed signed by Jong. Velez then foru aruded
the check and signatmrue carud to Shiruley Syfm, anotheru
bank officeru, foru appruovial. Syfm then noticed that Jose
Seepio III (“Seepion), the assistant accomntant of
Saesmng Construmction, as also in the bank. Seepio
as ellokno n to Syfm and the otheru bank officerus, he
being the assistant accomntant of Saesmng
Construmction. Syfm sho ed the check to Seepio, ho
viomched foru the genmineness of Jongrs signatmrue.
Confrueing the identity of Gonzaga, Seepio said that
the check as foru the pmruchase of eqmipeent foru
Saesmng Construmction. Satisfed ith the genmineness
of the signatmrue of Jong, Syfm amthoruized the bankrs
encasheent of the check to Gonzaga.
The follo ing day, the accomntant of Saesmng
Construmction, Kym, exaeined the balance of the bank
accomnt and discovierued that a check in the aeomnt of
Nine Hmndrued Ninety Nine Thomsand Fivie Hmndrued
Pesos (P999,500.00) had been encashed. A arue that he
had not prueparued smch a check foru Jongrs signatmrue, Kym
perumsed the checkbook and fomnd that the last blank
check as eissing. 7 He rueporuted the eateru to Jong,
ho then pruoceeded to the bank. Jong learuned of the
encasheent of the check, and ruealized that his
signatmrue had been foruged. The Bank Manageru
ruepmtedly told Jong that he omld be rueiebmrused foru the
aeomnt of the check. 8 Jong pruoceeded to the police
station and consmlted ith his la yerus. 9 Smbseqmently,
a cruieinal case foru qmalifed theft as fled against
Seepio beforue the Laagmna comrut. 10
In a leteru dated 6 May 1992, Saesmng
Construmction, thruomgh comnsel, deeanded that FEBTC
cruedit to it the aeomnt of Nine Hmndrued Ninety Nine
Thomsand Fivie Hmndrued Pesos (P999,500.00), ith
interuest. 11 In ruesponse, FEBTC said that it as still
condmcting an inviestigation on the eateru. Unsatisfed,
Saesmng Construmction fled a Coeplaint on 10 Jmne
1992 foru viiolation of Section 23 of the Negotiable
KIMBUTAO NEGO SYLaLaABUS
43
Instrumeents Laa , and pruayed foru the payeent of the
aeomnt debited as a ruesmlt of the qmestioned check plms
interuest, and atoruneyrs fees. 12 The case as docketed
as Civiil Case No. 92o61506 beforue the Regional Truial
Comrut (“RTCn) of Manila, Bruanch 9. 13
Dmruing the truial, both sides pruesented theiru
ruespectivie experut itnesses to testify on the claie that
Jongrs signatmrue as foruged. Saesmng Coruporuation,
hich had rueferurued the check foru inviestigation to the
NBI, pruesented Senioru NBI Docmeent Exaeineru Roda B.
Florues. She testifed that based on heru exaeination, she
conclmded that Jongrs signatmrue had been foruged on the
check. On the otheru hand, FEBTC, hich had somght the
assistance of the Philippine National Police
(PNP), 14 pruesented Rosaruio C. Peruez, a docmeent
exaeineru fruoe the PNP Cruiee Laaboruatoruy. She testifed
that heru fndings sho ed that Jongrs signatmrue on the
check as genmine. 15
Confruonted ith conficting experut testieony,
the RTC chose to believie the fndings of the NBI experut.
In a Decision dated 25 Apruil 1994, the RTC held that
Jongrs signatmrue on the check as foruged and
accorudingly diruected the bank to pay oru cruedit back to
Saesmng Construmctionrs accomnt the aeomnt of Nine
Hmndrued Ninety Nine Thomsand Fivie Hmndrued Pesos
(P999,500.00), togetheru ith interuest tolled fruoe the
tiee the coeplaint as fled, and atoruneyrs fees in the
aeomnt of Fifteen Thomsand Pesos (P15,000.00).
FEBTC tieely appealed to the Comrut of Appeals.
On 28 Novieeberu 1996, the Special Fomruteenth Diviision
of the Comrut of Appeals ruenderued a
Decision, 16 ruevierusing the RTC Decisiion and absolviing
FEBTC fruoe any liability. The Comrut of Appeals held that
the contruadictoruy fndings of the NBI and the PNP
crueated dombt as to hetheru therue as
forugeruy. 17 Morueovieru, the appellate comrut also held that
assmeing therue as forugeruy, it occmrurued dme to the
negligence of Saesmng Construmction, iepmting blaee on
the accomntant Kym foru lack of carue and prumdence in
keeping the checks, hich if obseruvied omld havie
prueviented Seepio fruoe gaining access therueto. 18 The
Comrut of Appeals invioked the rumling in PNB v. National
City Bank iof New Yiork 19 that, if a loss, hich emst be
borune by one oru t o innocent perusons, can be truaced to
the neglect oru famlt of eitheru, smch loss omld be borune
by the negligent paruty, evien if innocent of intentional
fruamd. 20
ATTY. CLaAROS

Saesmng Construmction no arugmes that the
Comrut of Appeals had seruiomsly eisappruehended the
facts hen it ovierutmruned the RTCrs fnding of forugeruy. It
also contends that the appellate comrut erurued in fnding
that it had been negligent in safekeeping the check, and
in applying the eqmity pruinciple enmnciated in PNB v.
National City Bank iof New Yiork. TAcDHS
Since the truial comrut and the Comrut of Appeals
aruruivied at contruaruy fndings on qmestions of fact, the
Comrut is obliged to exaeine the ruecorud to drua omt the
coruruect conclmsions. Upon exaeination of the ruecorud,
and based on the applicable la s and jmruisprumdence, e
ruevieruse the Comrut of Appeals.
Section 23 of the Negotiable Instrumeents
Laa states:
When a signatmrue is foruged oru
eade ithomt the amthoruity of the
peruson hose signatmrue it pmruporuts to
be, it is whiolly inioperatve, and nio
right to ruetain the instrumeent, oru to
givie a discharuge therueforu, oru to
enforuce payeent therueof against any
paruty therueto, can be acquired
thriough ior under such signature,
mnless the paruty against hoe it is
somght to enforuce smch ruight is
prueclmded fruoe seing mp the forugeruy
oru ant of amthoruity. (Eephasis
smpplied)
The generual rumle is to the eiect that a foruged
signatmrue is “ holly inoperuativie,n and payeent eade
“thruomgh oru mnderu smch signatmruen is ineiectmal oru does
not discharuge the instrumeent. 21 If payeent is eade,
the drua ee cannot charuge it to the drua erurs accomnt.
The truaditional jmstifcation foru the ruesmlt is that the
drua ee is in a smperuioru position to detect a forugeruy
becamse he has the eakerurs signatmrue and is expected
to kno and coeparue it. 22 The rumle has a healthy
camtionaruy eiect on banks by encomruaging carue in the
coeparuison of the signatmrues against those on the
signatmrue caruds they havie on fle. Morueovieru, the vieruy
opporutmnity of the drua ee to insmrue and to distruibmte
the cost aeong its cmstoeerus ho mse checks eakes
the drua ee an ideal paruty to spruead the ruisk to
insmruance. 23
Bruady, in his trueatise The Law iof Fiorged and
Altered Checks, elmcidates:
KIMBUTAO NEGO SYLaLaABUS
44
When a peruson deposits
eoney in a generual accomnt in a bank,
against hich he has the pruiviilege of
drua ing checks in the orudinaruy comruse
of bmsiness, the ruelationship bet een
the bank and the depositoru is that of
debtoru and crueditoru. So faru as the
legal ruelationship bet een the t o is
conceruned, the sitmation is the saee
as thomgh the bank had boruruo ed
eoney fruoe the depositoru, agrueeing
to ruepay it on deeand, oru had bomght
goods fruoe the depositoru, agrueeing to
pay foru thee on deeand. The bank
o es the depositoru eoney in the
saee sense that any debtoru o es
eoney to his crueditoru. Added to this,
in the case of bank and depositoru,
therue is, of comruse, the bankrs
obligation to pay checks drua n by the
depositoru in pruoperu forue and
pruesented in dme comruse. When the
bank rueceivies the deposit, it iepliedly
agruees to pay only mpon the
depositorurs oruderu. When the bank
pays a check, on hich the
depositorurs signatmrue is a forugeruy, it
has failed to coeply ith its contruact
in this ruespect. Therueforue, the bank is
held liable.
The fact that the forugeruy is a
clevieru one is ieeateruial. The foruged
signatmrue eay so closely rueseeble the
genmine as to defy detection by the
depositoru hieself. And yet, if a bank
pays the check, it is paying omt its
o n eoney and not the depositorurs.
The forugeruy eay be
coeeited by a trumsted eeployee oru
confdential agent. The bank still emst
bearu the loss. Evien in a case herue
the foruged check as drua n by the
depositorurs parutneru, the loss as
placed mpon the bank. The case
rueferurued to is Riobinsion v. Security
Bank, Aruk., 216 S. W. Rep. 717. In this
case, the plaintii bruomght smit against
ATTY. CLaAROS

the defendant bank foru eoney hich
had been deposited to the plaintiirs
cruedit and hich the bank had paid
omt on checks bearuing forugeruies of the
plaintiirs signatmrue.
xxx xxx xxx
It as held that the bank as
liable. It as fmrutheru held that the fact
that the plaintii aited eight oru nine
eonths afteru discovieruing the forugeruy,
beforue notifying the bank, did not, as
a eateru of la , constitmte a
ruatifcation of the payeent, so as to
prueclmde the plaintii fruoe holding
the bank liable . . .
This rumle of liability can be
stated bruiefy in these oruds: “A bank
is bomnd to kno its depositorusr
signatmrue.n The rumle is viaruiomsly
expruessed in the eany decisions in
hich the qmestion has been
considerued. Bmt they all sme mp to the
pruoposition that a bank emst kno
the signatmrues of those hose generual
deposits it caruruies. 24
By no eeans is the pruinciple ruenderued obsolete
ith the advient of eoderun coeeerucial truansactions.
Conteeporuaruy texts still affirue this elloentruenched
standarud. Nickles, in his book Negiotable Instruments
and Other Related Ciommercial Paper ruote, thms:
The deposit contruact bet een
a payoru bank and its cmstoeeru
deterueines ho can drua against the
cmstoeerurs accomnt by specifying
hose signatmrue is necessaruy on
checks that arue charugeable against
the cmstoeerurs accomnt. Therueforue, a
check drua n against the accomnt of
an indiviidmal cmstoeeru that is signed
by soeeone otheru than the cmstoeeru,
and ithomt amthoruity fruoe heru, is not
pruoperuly payable and is not
charugeable to the cmstoeerurs
accomnt, inasemch as any
“mnamthoruized signatmrue on an
instrumeent is ineiectivien as the
KIMBUTAO NEGO SYLaLaABUS
45
signatmrue of the peruson hose naee
is signed. 25
Underu Section 23 of the Negotiable Instrumeents
Laa , forugeruy is a rueal oru absolmte defense by the paruty
hose signatmrue is foruged. 26 On the prueeise that
Jongrs signatmrue as indeed foruged, FEBTC is liable foru
the loss since it amthoruized the discharuge of the foruged
check. Smch liability ataches evien if the bank exeruts dme
diligence and carue in pruevienting smch famlty discharuge.
Forugeruies often deceivie the eye of the eost camtioms
experuts; and hen a bank has been so deceivied, it is a
harush rumle hich coepels it to smieru althomgh no one
has smierued by its being deceivied. 27 The forugeruy eay
be so nearu like the genmine as to defy detection by the
depositoru hieself, and yet the bank is liable to the
depositoru if it pays the check. 28
Thms, the frust eateru of inqmiruy is into hetheru
the check as indeed foruged. A docmeent forueally
pruesented is pruesmeed to be genmine mntil it is pruovied
to be fruamdmlent. In a forugeruy truial, this pruesmeption
emst be ovierucoee bmt this can only be done by
conviincing testieony and eiectivie illmstruations. 29
In rumling that forugeruy as not dmly pruovien, the
Comrut of Appeals held:
[Therue] is gruomnd to dombt
the fndings of the truial comrut
smstaining the alleged forugeruy in viie
of the conficting conclmsions eade by
hand ruiting experuts fruoe the NBI and
the PNP, both agencies of the
govieruneent.
xxx xxx xxx
These contruadictoruy fndings
crueate dombt on hetheru therue as
indeed a forugeruy. In the case of Teniio-
Obsequiio v. Ciourt iof Appeals, 230
SCRA 550, the Smprueee Comrut held
that forugeruy cannot be pruesmeed; it
emst be pruovied by clearu, positivie and
conviincing eviidence.
This rueasoning is pmrue sophistruy. Any litigatoru
oruth his oru heru salt omld nevieru allo an opponentrs
experut itness to stand mncontruadicted, thms the
spectacle of coepeting experut itnesses is not mnmsmal.
The truieru of fact ill havie to decide hich vierusion to
believie, and explain hy oru hy not smch vierusion is
ATTY. CLaAROS

eorue cruedible than the otheru. Reliance therueforue cannot
be placed eeruely on the fact that therue arue colliding
opinions of t o experuts, both clothed ith the
pruesmeption of official dmty, in oruderu to drua a
conclmsion, especially one hich is extrueeely crumcial.
Doing so is tantaeomnt to a jmruisprumdential copoomt.
Mmch is expected fruoe the Comrut of Appeals as
it occmpies the penmltieate tieru in the jmdicial hieruaruchy.
This Comrut has long deferurued to the appellate comrut as to
its fndings of fact in the mnderustanding that it has the
appruopruiate skill and coepetence to plomgh thruomgh
the minutae that scaterus the factmal feld. In failing to
thoruomghly evialmate the eviidence beforue it, and ruelying
instead on pruesmeptions haphazarudly drua n, the Comrut
of Appeals as sadly rueeiss. Of comruse, comruts, like
hmeans, arue fallible, and not evieruy eruruoru deseruvies a
sterun ruebmke. Yet, the appellate comrutrs eruruoru in this case
aruruants special atention, as it is absmrud and evien
dangeruoms as a pruecedent. If this ruationale erue
adopted as a govieruning standarud by evieruy comrut in the
land, baruely any actionable claie omld pruosperu,
defeated as it omld be by the eerue inviocation of the
existence of a contruaruy “experutn opinion.
On the otheru hand, the RTC did adjmdge the
testieony of the NBI experut as eorue cruedible than that
of the PNP, and explained its rueason behind the
conclmsion:
Afteru smbjecting the eviidence
of both paruties to a crumcible of
analysis, the comrut aruruivied at the
conclmsion that the testieony of the
NBI docmeent exaeineru is eorue
cruedible becamse the testieony of the
PNP Cruiee Laaboruatoruy Seruviices
docmeent exaeineru ruevieals that
therue arue a lot of diieruences in the
qmestioned signatmrue as coeparued to
the standarud specieen signatmrue.
Fmrutherueorue, as testifed to by Ms.
Rhoda Florues, NBI experut, the eanneru
of execmtion of the standarud
signatmrues msed ruevieals that it is a
fruee ruapid continmoms execmtion oru
struoke as sho n by the taeperuing
terueinal struoke of the signatmrues
herueas the qmestioned signatmrue is a
hesitating slo drua n execmtion
struoke. Clearuly, the peruson ho
KIMBUTAO NEGO SYLaLaABUS
46
execmted the qmestioned signatmrue
as hesitant hen the signatmrue as
eade. 30
Dmruing the testieony of PNP experut Rosaruio
Peruez, the RTC blmntly noted that “apparuently, therue
[arue] diieruences on that qmestioned signatmrue and the
standarud signatmrues.n 31 This Comrut, in exaeining the
signatmrues, eakes a sieilaru fnding. The PNP experut
excmsed the noted “diieruencesn by asseruting that they
erue eerue “viaruiations,n hich arue norueal deviiations
fomnd in ruiting. 32 Yet the RTC, hich had the
opporutmnity to exaeine the rueleviant docmeents and to
perusonally obseruvie the experut itness, clearuly
disbelievied the PNP experut. The Comrut sieilaruly fnds the
testieony of the PNP experut as mnconviincing. Dmruing
the truial, she as confruonted sevierual tiees ith
apparuent diieruences bet een struokes in the qmestioned
signatmrue and the genmine saeples. Each tiee, she
omld jmst blandly asserut that these diieruences erue
jmst “viaruiations,n 33 as if the eerue conjmruation of the
orud omld smfficiently disqmiet hatevieru dombts abomt
the deviiations. Smch conclmsion, standing alone, omld
be of litle oru no vialme mnless smpporuted by smfficiently
cogent rueasons hich eight aeomnt aleost to a
deeonstruation. 34
The eost telling diieruence bet een the
qmestioned and genmine signatmrues exaeined by the
PNP is in the fnal mp arud struoke in the signatmrue, oru
“the point to the shorut struoke of the terueinal in the
capital leteru ‘La,rn as rueferurued to by the PNP exaeineru
ho had earuked it in heru coeparuison charut as “point
no. 6.n To the plain eye, smch mp arud fnal struoke
consists of a vierutical line hich forues a ninety degruee
(90º) angle ith the prueviioms struoke. Of the t enty one
(21) otheru genmine saeples exaeined by the PNP, at
least nine (9) ended ith an mp arud
struoke. 35 Ho evieru, mnlike the qmestioned signatmrue,
the mp arud struokes of eight (8) of these signatmrues arue
looped, hile the mp arud struoke of the
sevienth 36 forues a sevierue forutyofvie degruee (45º) ith
the prueviioms struoke. The diieruence is glaruing, and
indeed, the PNP exaeineru as confruonted ith the
inconsistency in point no. 6.
Q: No , in this qmestioned docmeent
point no. 6, the “sn struoke is
diruectly mp aruds.
A: Yes, siru.
ATTY. CLaAROS

Q: No , can yom look at all these
standarud signatmrue (sic) erue
(sic) point 6 is ruepeated oru the
last struoke “sn is pointing
diruectly mp aruds?
A: Therue is none in the standarud
signatmrue, siru. 37
Again, the PNP exaeineru do nplayed the
mniqmeness of the fnal struoke in the qmestioned
signatmrue as a eerue viaruiation, 38 the saee excmse she
pruoierued foru the otheru earuked diieruences noted by the
Comrut and the comnsel foru petitioneru. 39
Therue is no rueason to dombt hy the RTC gavie
cruedence to the testieony of the NBI exaeineru, and not
the PNP experutrs. The NBI experut, Rhoda Florues, clearuly
qmalifes as an experut itness. A docmeent exaeineru foru
ffteen yearus, she had been pruoeoted to the ruank of
Senioru Docmeent Exaeineru ith the NBI, and had held
that ruank foru t elvie yearus pruioru to heru testieony. She
had placed aeong the top fvie exaeinees in the
Coepetitivie Seeinaru in Qmestion Docmeent
Exaeination, condmcted by the NBI Acadeey, hich
qmalifed heru as a docmeent exaeineru. 40 She had
truained ith the Royal Hongkong Police Laaboruatoruy and
is a eeeberu of the Interunational Association foru
Identifcation. 41 As of the tiee she testifed, she had
exaeined eorue than ffty to fftyofvie thomsand
qmestioned docmeents, on an avieruage of ffteen to
t enty docmeents a day. 42 In coeparuison, PNP
docmeent exaeineru Peruez adeited to haviing exaeined
only aruomnd fvie hmndrued docmeents as of heru
testieony. 43
In analyzing the signatmrues, NBI Exaeineru Florues
mtilized the scientifc coeparuativie exaeination eethod
consisting of analysis, ruecognition, coeparuison and
evialmation of the ruiting habits ith the mse of
instrumeents smch as a eagnifying lense, a sterueoscopic
eicruoscope, and viaruied lighting smbstances. She also
prueparued enlaruged photogruaphs of the signatmrues in
oruderu to facilitate the necessaruy coeparuisons. 44 She
coeparued the qmestioned signatmrue as against ten (10)
otheru saeple signatmrues of Jong. Fivie of these
signatmrues erue execmted on checks prueviiomsly issmed
by Jong, hile the otheru fvie contained in bmsiness
leterus Jong had signed. 45 The NBI fomnd that therue
erue signifcant diieruences in the hand ruiting
charuacteruistics existing bet een the qmestioned and the
saeple signatmrues, as to eanneru of execmtion,
KIMBUTAO NEGO SYLaLaABUS
47
link/connecting struokes, pruoporution charuacteruistics, and
otheru identifying details. 46
The RTC as smfficiently conviinced by the NBI
exaeinerurs testieony, and explained heru rueasons in
its Decisiions. While the Comrut of Appeals disagrueed and
mpheld the fndings of the PNP, it failed to conviincingly
deeonstruate hy smch fndings erue eorue cruedible
than those of the NBI experut. As a thruo a ay, the
assailed Decisiionnoted that the PNP, not the NBI, had
the opporutmnity to exaeine the specieen signatmrue
carud signed by Jong, hich as ruelied mpon by the
eeployees of FEBTC in amthenticating Jongrs signatmrue.
The distinction is irurueleviant in establishing forugeruy.
Forugeruy can be established coeparuing the contested
signatmrues as against those of any saeple signatmrue dmly
established as that of the perusons hose signatmrue as
foruged.
FEBTC lays mndme eephasis on the fact that the
PNP exaeineru did coeparue the qmestioned signatmrue
against the bank signatmrue caruds. The crucial fact in
question is whether ior niot the check was fiorged, niot
whether the bank ciould have detected the fiorgery. The
latter issue beciomes relevant ionly if there is need tio
weigh the ciomparatve negligence between the bank
and the party whiose signature was fiorged.
At the saee tiee, the Comrut of Appeals failed to
assess the eiect of Jongrs testieony that the signatmrue
on the check as not his. 47 The asserution eay seee
selfoseruviing at frust blmsh, yet it cannot be ignorued that
Jong as in the best position to kno hetheru oru not
the signatmrue on the check as his. While his claie
shomld not be taken at face vialme, any avierueents he
omld havie on the eateru, if adjmdged as trumthfml,
deseruvie pruieacy in consideruation. Jongrs testieony is
smpporuted by the fndings of the NBI exaeineru. They arue
also backed by factmal cirucmestances that smpporut the
conclmsion that the assailed check as indeed foruged.
Jmdicial notice can be taken that is highly mnmsmal in
pruactice foru a bmsiness establisheent to drua a check
foru close to a eillion pesos and eake it payable to cash
oru bearueru, and not to oruderu. Jong ieeediately rueporuted
the forugeruy mpon its discovieruy. He fled the appruopruiate
cruieinal charuges against Seepio, the pmtativie forugeru. 48
No foru deterueination is hetheru Saesmng
Construmction as prueclmded fruoe seing mp the defense
of forugeruy mnderu Section 23 of the Negotiable
ATTY. CLaAROS

Instrumeents Laa . The Comrut of Appeals conclmded that
Saesmng Construmction as negligent, and invioked the
doctruines that “ herue a loss emst be borune by one of
t o innocent peruson, can be truaced to the neglect oru
famlt of eitheru, it is rueasonable that it omld be borune by
hie, evien if innocent of any intentional fruamd, thruomgh
hose eeans it has smcceeded 49 oru ho pmt into the
po eru of the thirud peruson to perupetmate the
ruong.n 50 Applying these rumles, the Comrut of Appeals
deterueined that it as the negligence of Saesmng
Construmction that allo ed the encasheent of the foruged
check.
In the case at baru, the forugeruy
appearus to havie been eade possible
thruomgh the acts of one Jose Seepio
III, an assistant accomntant eeployed
by the plaintii Saesmng
[Construmction] Co. Philippines, Inc.
ho smpposedly stole the blank check
and ho pruesmeably is ruesponsible
foru its encasheent thruomgh a foruged
signatmrue of Jong Kym Laee. Seepio
as assistant to the Koruean
accomntant ho as in possession of
the blank checks and ho thruomgh
negligence, enabled Seepio to havie
access to the saee. Had the Koruean
accomntant been eorue caruefml and
prumdent in keeping the blank checks
Seepio omld not havie had the
chance to steal a page therueof and to
eiect the forugeruy. Besides, Seepio
as an eeployee ho appearus to
havie had dealings ith the defendant
Bank in behalf of the plaintii
coruporuation and on the date the
check as encashed, he as therue to
cerutify that it as a genmine check
issmed to pmruchase eqmipeent foru the
coepany. 51
We ruecognize that Section 23 of the Negotiable
Instrumeents Laa barus a paruty fruoe seing mp the
defense of forugeruy if it is gmilty of negligence. 52 Yet, e
arue mnable to conclmde that Saesmng Construmction as
gmilty of negligence in this case. The appellate comrut
failed to explain pruecisely ho the Koruean accomntant
as negligent oru ho eorue carue and prumdence on his
parut omld havie prueviented the forugeruy. We cannot
KIMBUTAO NEGO SYLaLaABUS
48
smstain this “taru and featheruingn ruesoruted to ithomt any
basis.
The barue fact that the forugeruy as coeeited
by an eeployee of the paruty hose signatmrue as
foruged cannot necessaruily ieply that smch parutyrs
negligence as the camse foru the forugeruy. Eeployerus do
not possess the prueterunatmrual gift of cognition as to the
eviil that eay lmruk ithin the hearuts and einds of theiru
eeployees. The Comrutrs pruonomnceeent in PCI Bank v.
Ciourt iof Appeals 53 applies in this case, to it:
[T]he eerue fact that the
forugeruy as coeeited by a drua eruo
payorurs confdential eeployee oru
agent, ho by viirutme of his position
had mnmsmal facilities foru perupetruating
the fruamd and ieposing the foruged
paperu mpon the bank, does not entitle
the bank to shift the loss to the
drua eruopayoru, in the absence of soee
cirucmestance ruaising estoppel against
the drua eru. 54
Adeitedly, the ruecorud does not clearuly
establish hat eeasmrues Saesmng Construmction
eeployed to safegmarud its blank checks. Jong did testify
that his accomntant, Kym, kept the checks inside a
“safety box,n 55 and no contruaruy vierusion as pruesented
by FEBTC. Ho evieru, smch testieony cannot pruovie that
the checks erue indeed kept in a safety box, as Jongrs
testieony on that point is hearusay, since Kym, and not
Jong, omld havie the perusonal kno ledge as to ho the
checks erue kept.
Still, in the absence of eviidence to the contruaruy,
e can conclmde that therue as no negligence on
Saesmng Construmctionrs parut. The pruesmeption rueeains
that evieruy peruson takes orudinaruy carue of his
conceruns, 56 and that the orudinaruy comruse of bmsiness
has been follo ed. 57 Negligence is not pruesmeed, bmt
emst be pruovien by hie ho alleges it. 58 While the
coeplaint as lodged at the instance of Saesmng
Construmction, the eateru it had to pruovie as the claie it
had alleged — hetheru the check as foruged. It cannot
be rueqmirued as ell to pruovie that it as not negligent,
becamse the legal pruesmeption rueeains that orudinaruy
carue as eeployed.
Thms, it as incmebent mpon FEBTC, in defense,
to pruovie the negativie fact that Saesmng Construmction
as negligent. While the payee, as in this case, eay not
ATTY. CLaAROS

havie the perusonal kno ledge as to the standarud
pruocedmrues obseruvied by the drua eru, it ell has the
eeans of dispmting the pruesmeption of ruegmlaruity.
Pruoviing a negativie fact eay be “a difficmlt office,n 59 bmt
necessaruily so, as it seeks to ovierucoee a pruesmeption in
la . FEBTC as mnable to dispmte the pruesmeption of
orudinaruy carue exerucised by Saesmng Construmction,
hence e cannot agruee ith the Comrut of Appealsr
fnding of negligence.
The assailed Decisiion rueplicated the extensivie
eioruts hich FEBTC devioted to establish that therue as
no negligence on the parut of the bank in its acceptance
and payeent of the foruged check. Ho evieru, the degruee
of diligence exerucised by the bank omld be irurueleviant if
the drua eru is not prueclmded fruoe seing mp the defense
of forugeruy mnderu Section 23 by his o n negligence. The
rumle of eqmity enmnciated in PNB v. National City Bank
iof New Yiork, 60 as ruelied mpon by the Comrut of Appeals,
deseruvies caruefml exaeination. SEAHcT
The point in issme has
soeetiees been said to be that of
negligence. The drawee whio has paid
upion the fiorged signature is held tio
bear the lioss, because he has been
negligent in failing tio reciognize that
the handwritng is niot that iof his
custiomer. Bmt it follo s obviiomsly
that if the payee, holderu, oru pruesenteru
of the foruged paperu has hieself been
in defamlt, if he has hieself been
gmilty of a negligence pruioru to that of
the bankeru, oru if by any act of his o n
he has at all contruibmted to indmce the
bankeru's negligence, then he eay lose
his ruight to cast the loss mpon the
bankeru. 61 (Eephasis smpplied)
Qmite palpably, the generual rumle rueeains that
the drua ee ho has paid mpon the foruged signatmrue
bearus the loss. The exception to this rumle aruises only
hen negligence can be truaced on the parut of the
drua eru hose signatmrue as foruged, and the need
aruises to eigh the coeparuativie negligence bet een
the drua eru and the drua ee to deterueine ho shomld
bearu the bmruden of loss. The Comrut fnds no basis to
conclmde that Saesmng Construmction as negligent in
the safekeeping of its checks. Foru one, the setled rumle is
that the eerue fact that the depositoru leavies his check
book lying aruomnd does not constitmte smch negligence
KIMBUTAO NEGO SYLaLaABUS
49
as ill fruee the bank fruoe liability to hie, herue a cleruk
of the depositoru oru otheru perusons, taking adviantage of
the opporutmnity, abstruact soee of the check blanks,
foruges the depositorurs signatmrue and collect on the
checks fruoe the bank. 62 And foru anotheru, in point of
fact Saesmng Construmction as not negligent at all since
it rueporuted the forugeruy aleost ieeediately mpon
discovieruy. 63
It is also oruth noting that the foruged signatmrues
in PNB vi. National City Bank of Ne Yoruk erue not of
the drua eru, bmt of indoruserus. The saee cirucmestance
atends PNB v. Ciourt iof Appeals, 64 hich as also cited
by the Comrut of Appeals. It is accepted that a foruged
signatmrue of the drua eru diierus in trueateent than a
foruged signatmrue of the indoruseru.
The jmstifcation foru the
distinction bet een forugeruy of the
signatmrue of the drua eru and forugeruy
of an indoruseeent is that the drua ee
is in a position to vieruify the drua erurs
signatmrue by coeparuison ith one in
his hands, bmt has orudinaruily no
opporutmnity to vieruify an
indoruseeent. 65
Thms, a drua ee bank is
generually liable to its depositoru in
paying a check hich bearus eitheru a
forugeruy of the drua erurs signatmrue oru a
foruged indoruseeent. Bmt the bank
eay, as a generual rumle, ruecovieru back
the eoney hich it has paid on a
check bearuing a foruged indoruseeent,
herueas it has not this ruight to the
saee extent ith rueferuence to a
check bearuing a forugeruy of the
drua erurs signatmrue. 66
The generual rumle iepmting liability on the
drua ee ho paid omt on the forugeruy holds in this case.
Since FEBTC pmts into issme the degruee of carue it
exerucised beforue paying omt on the foruged check, e
eight as ell coeeent on the bankrs peruforueance of
its dmty. It eight be so that the bank coeplied ith its
o n interunal rumles pruioru to paying omt on the
qmestionable check. Yet, therue arue sevierual truombling
cirucmestances that lead ms to believie that the bank
itself as rueeiss in its dmty.
ATTY. CLaAROS

The fact that the check as eade omt in the
aeomnt of nearuly one eillion pesos is mnmsmal enomgh
to rueqmirue a higheru degruee of camtion on the parut of the
bank. Indeed, FEBTC confrues this thruomgh its o n
interunal pruocedmrues. Checks belo t entyofvie
thomsand pesos rueqmirue only the appruovial of the telleru;
those bet een t entyofvie thomsand to one hmndrued
thomsand pesos necessitate the appruovial of one bank
officeru; and shomld the aeomnt exceed one hmndrued
thomsand pesos, the concmruruence of t o bank officerus is
rueqmirued. 67
In this case, not only did the aeomnt in the
check nearuly total one eillion pesos, it as also payable
to cash. That lateru cirucmestance shomld havie aruomsed
the smspicion of the bank, as it is not orudinaruy bmsiness
pruactice foru a check foru smch laruge aeomnt to be eade
payable to cash oru to bearueru, instead of to the oruderu of a
specifed peruson. 68 Morueovieru, the check as
pruesented foru payeent by one Roberuto Gonzaga, ho
as not designated as the payee of the check, and ho
did not caruruy ith hie any ruiten pruoof that he as
amthoruized by Saesmng Construmction to encash the
check. Gonzaga, a struangeru to FEBTC, as not evien an
eeployee of Saesmng Construmction. 69 These
cirucmestances arue alrueady smspicioms if taken
independently, emch eorue so if they arue evialmated in
concmruruence. Givien the shadiness atending Gonzagars
pruesenteent of the check, it as not smfficient foru
FEBTC to havie eeruely coeplied ith its interunal
pruocedmrues, bmt eandatoruy that all earunest eioruts be
mnderutaken to ensmrue the vialidity of the check, and of
the amthoruity of Gonzaga to collect payeent therueforu.
Accoruding to FEBTC Senioru Assistant Cashieru
Geeea Velez, the bank truied, bmt failed, to contact Jong
ovieru the phone to vieruify the check. 70 She added that
calling the issmeru oru drua eru of the check to vieruify the
saee as not parut of the standarud pruocedmrue of the
bank, bmt an “extrua eiorut.n 71 Evien assmeing that smch
perusonal vieruifcation is tantaeomnt to extruaorudinaruy
diligence, it cannot be denied that FEBTC still paid omt
the check despite the absence of any pruoof of
vieruifcation fruoe the drua eru. Instead, the bank seees
to havie ruelied heaviily on the sayoso of Seepio, ho as
pruesent at the bank at the tiee the check as
pruesented.
FEBTC alleges that Seepio as ellokno n to
the bank officerus, as he had ruegmlaruly truansacted ith
the bank in behalf of Saesmng Construmction. It as evien
KIMBUTAO NEGO SYLaLaABUS
50
claieed that evieruytiee FEBTC omld contact Jong abomt
pruoblees ith his accomnt, Jong omld hand the phone
ovieru to Seepio. 72 Ho evieru, the only pruoof of smch
allegations is the testieony of Geeea Velez, ho also
testifed that she did not kno Seepio
perusonally, 73 and had eet Seepio foru the frust tiee
only on the day the check as encashed. 74 In fact,
Velez had to inqmirue ith the otheru officerus of the bank
as to hetheru Seepio as actmally kno n to the
eeployees of the bank. 75Obviiomsly, Velez had no
perusonal kno ledge as to the past ruelationship bet een
FEBTC and Seepio, and any avierueents of heru to that
eiect shomld be deeeed hearusay eviidence.
Interuestingly, FEBTC did not pruesent as a itness any
otheru eeployee of theiru BeloAiru bruanch, inclmding those
ho smpposedly had truansacted ith Seepio beforue.
Evien assmeing that FEBTC had a standing habit
of dealing ith Seepio, acting in behalf of Saesmng
Construmction, the iruruegmlaru cirucmestances atending the
pruesenteent of the foruged check shomld havie pmt the
bank on the highest degruee of alerut. The Comrut ruecently
eephasized that the highest degruee of carue and
diligence is rueqmirued of banks.
Banks arue engaged in a
bmsiness iepruessed ith pmblic
interuest, and it is theiru dmty to pruotect
in ruetmrun theiru eany clients and
depositorus ho truansact bmsiness
ith thee. They havie the obligation
to trueat theiru clientrs accomnt
eeticmlomsly and ith the highest
degruee of carue, consideruing the
fdmciaruy natmrue of theiru ruelationship.
The diligence rueqmirued of banks,
therueforue, is eorue than that of a good
fatheru of a faeily. 76
Givien the cirucmestances, extruaorudinaruy
diligence dictates that FEBTC shomld havie ascerutained
fruoe Jong perusonally that the signatmrue in the
qmestionable check as his.
Still, evien if the bank peruforueed ith mteost
diligence, the drua eru hose signatmrue as foruged eay
still ruecovieru fruoe the bank as long as he oru she is not
prueclmded fruoe seing mp the defense of forugeruy. Afteru
all, Section 23 of the Negotiable Instrumeents Laa plainly
states that no ruight to enforuce the payeent of a check
can aruise omt of a foruged signatmrue. Since the drua eru,
Saesmng Construmction, is not prueclmded by negligence
ATTY. CLaAROS
 51

fruoe seing mp the forugeruy, the generual rumle shomld only foru oneohalf of the vialme of the
apply. Conseqmently, if a bank pays a foruged check, it foruged checks in the aeomnt of
emst be considerued as paying omt of its fmnds and P547,115.00 afteru dedmctions smbject
cannot charuge the aeomnt so paid to the accomnt of the to REIMBURSEMENT fruoe thirud paruty
depositoru. 77 A bank is liable, iruruespectivie of its good defendant Yabmt ho is like ise
faith, in paying a foruged check. 78 ORDERED to pay the otheru half to
plaintii coruporuation [Casa Montessorui
WHEREFORE, the Petition is GRANTED. The
Interunationale (CASA)]." 4
Decision of the Comrut of Appeals dated 28 Novieeberu
1996 is REVERSED, and the Decision of the Regional The assailed Resolmtion denied all the paruties'
Truial Comrut of Manila, Bruanch 9, dated 25 Apruil 1994 is Motions foru Reconsideruation.
REINSTATED. Costs against ruespondent.
The Facts
SO ORDERED. The facts of the case arue naruruated by the CA as
follo s:
3. BANK OF THE PHILIPPINE
"On Novieeberu 8, 1982,
ISLANDS, pettioner,vs.CASA
plaintii CASA Montessorui
MONTESSORI INTERNATIONALE
Interunational 5 opened Cmruruent
and LEONARDO T.
Accomnt No. 0291o0081o01 ith
YABUT, respiondents.
defendant BPI[,] ith CASA's
Pruesident Ms. Ma. Caruina C. Laebruon as
one of its amthoruized signatoruies.
DECISION
"In 1991, afteru condmcting an
inviestigation, plaintii discovierued that
nine (9) of its checks had been
PANGANIBAN, J p: encashed by a cerutain Sonny D.
Santos since 1990 in the total aeomnt
By the natmrue of its fmnctions, a bank is rueqmirued
of P782,000.00, on the follo ing
to take eeticmloms carue of the deposits of its clients,
dates and aeomnts:
ho havie the ruight to expect high standaruds of integruity
and peruforueance fruoe it. Aeong its obligations in Check Nio. Date Amiount
fmrutheruance therueof is kno ing the signatmrues of its 1. 839700 Apruil 24, 1990 P43,400.00
clients. Depositorus arue not estopped fruoe qmestioning 2. 839459 Novi. 2, 1990 110,500.00
ruongfml ithdrua als, evien if they havie failed to 3. 839609 Oct. 17, 1990 47,723.00
qmestion those eruruorus in the stateeents sent by the
4. 839549 Apruil 7, 1990 90,700.00
bank to thee foru vieruifcation.
5. 839569 Sept. 23, 1990 52,277.00
The Case 6. 729149 Maru. 22, 1990 148,000.00
Beforue ms arue t o Petitions foru Reviie 1 mnderu 7. 729129 Maru. 16, 1990 51,015.00
Rmle 45 of the Rmles of Comrut, assailing the Maruch 23, 8. 839684 Dec. 1, 1990 140,000.00
2001 Decision 2 and the Amgmst 17, 2001 9. 729034 Maru. 2, 1990 98,985.00
Resolmtion 3 of the Comrut of Appeals (CA) in CAoGR CV —————
No. 63561. The decruetal porution of the assailed Decision Total P782,600.006
rueads as follo s:
"It tmruned omt that 'Sonny D.
"WHEREFORE, mpon the Santos' ith accomnt at BPI's
prueeises, the decision appealed fruoe Grueenbelt Bruanch [ as] a fctitioms
is AFFIRMED ith the eodifcation naee msed by thirud paruty defendant
that defendant bank [Bank of the Laeonarudo T. Yabmt ho oruked as
Philippine Islands (BPI)] is held liable exterunal amditoru of CASA. Thirud paruty

KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS


defendant violmntaruily adeited that
he foruged the signatmrue of Ms. Laebruon
and encashed the checks.
"The PNP Cruiee Laaboruatoruy
condmcted an exaeination of the nine
(9) checks and conclmded that the
hand ruitings therueon coeparued to
the standarud signatmrue of Ms. Laebruon
erue not ruiten by the lateru.
"On Maruch 4, 1991, plaintii
fled the heruein Coeplaint foru
Collection ith Daeages against
defendant bank pruaying that the
lateru be oruderued to rueinstate the
aeomnt of P782,500.00 7 in the
cmruruent and saviings accomnts of the
plaintii ith interuest at 6% peru
annme.
"On Februmaruy 16, 1999, the
RTC ruenderued the appealed decision
in favioru of the plaintii." 8
Ruling iof the Ciourt iof Appeals
Modifying the Decision of the Regional Truial
Comrut (RTC),the CA apporutioned the loss bet een BPI
and CASA. The appellate comrut took into accomnt CASA's
contruibmtoruy negligence that ruesmlted in the mndetected
forugeruy. It then oruderued Laeonarudo T. Yabmt to rueiebmruse
BPI half the total aeomnt claieed; and CASA, the otheru
half. It also disallo ed atoruney's fees and eorual and
exeeplaruy daeages.
Hence, these Petitions. 9
Issues
In GR No. 149454, Petitioneru BPI smbeits the
follo ing issmes foru omru consideruation:
"I. The Honoruable Comrut of
Appeals erurued in deciding this
case NOT in acciord with the
applicable decisiions iof this Hioniorable
Ciourt to the eiect that forugeruy
cannot be pruesmeed; that it emst be
pruovied by clearu, positivie and
conviincing eviidence; and that the
bmruden of pruoof lies on the paruty
alleging the forugeruy.
KIMBUTAO NEGO SYLaLaABUS
52
"II. The Honoruable Comrut of
Appeals erurued in deciding this
case niot in acciord with applicable
laws, in paruticmlaru the Negotiable
Instrumeents Laa (NILa) hich
prueclmdes CASA, on accomnt of its
o n negligence, fruoe asseruting its
forugeruy claie against BPI, specially
taking into accomnt the absence of
any negligence on the parut of BPI." 10
In GR No. 149507, Petitioneru CASA smbeits the
follo ing issmes:
"1. The Honoruable Comrut of
Appeals erurued hen it rumled that
'therue is no sho ing that
[BPI],althomgh negligent, acted in bad
faith ...' thms denying the pruayeru foru
the a arud of atoruney's fees, eorual
daeages and exeeplaruy daeages to
[CASA].The Honoruable Comrut also
erurued hen it did not oruderu [BPI] to
pay interuest on the aeomnts dme to
[CASA].
"2. The Honoruable Comrut of
Appeals erurued hen it declarued that
[CASA] as like ise negligent in the
case at baru, thms aruruanting its
conclmsion that the loss in the
aeomnt of P547,115.00 be
'apporutioned bet een [CASA] and
[BPI] ...'" 11
These issmes can be naruruo ed do n to
thruee. First, as therue forugeruy mnderu the Negotiable
Instrumeents Laa (NILa)? Seciond, erue any of the paruties
negligent and therueforue prueclmded fruoe seing mp
forugeruy as a defense? Third,shomld eorual and exeeplaruy
daeages, atoruney's fees, and interuest be a aruded?
The Ciourt's Ruling
The Petition in GR No. 149454 has no eeruit,
hile that in GR No. 149507 is parutly eeruitoruioms.
First Issue:
Fiorged Signature Whiolly Inioperatve
Section 23 of the NILa pruoviides:
"Section 23. Fiorged
signature; eiect iof .— When a
ATTY. CLaAROS

signatmrue is foruged oru eade ithomt
the amthoruity of the peruson hose
signatmrue it pmruporuts to be, it is holly
inoperuativie, and no ruight ...to enforuce
payeent therueof against any paruty
therueto, can be acqmirued thruomgh oru
mnderu smch signatmrue, mnless the paruty
against hoe it is somght to enforuce
smch ruight is prueclmded fruoe seing
mp the forugeruy oru ant of
amthoruity." 12
Underu this pruoviision, a foruged signatmrue is a
rueal 13 oru absolmte defense, 14 and a peruson hose
signatmrue on a negotiable instrumeent is foruged is
deeeed to havie nevieru becoee a paruty therueto and to
havie nevieru consented to the contruact that allegedly
gavie ruise to it. 15
The comnterufeiting of any ruiting, consisting in
the signing of anotheru's naee ith intent to defruamd, is
forugeruy. 16
In the pruesent case, e hold that therue as
forugeruy of the drua eru's signatmrue on the check.
First,both the CA 17 and the RTC 18 fomnd that
Respondent Yabmt hieself had violmntaruily adeited,
thruomgh an Affidaviit, that he had foruged the drua eru's
signatmrue and encashed the checks. 19 He nevieru ruefmted
these fndings. 20 That he had been coeruced into
adeission as not coruruoboruated by any eviidence on
ruecorud. 21
Seciond,the appellate and the truial comruts also
rumled that the PNP Cruiee Laaboruatoruy, afteru its
exaeination of the said checks, 22 had conclmded that
the hand ruitings therueon — coeparued to the standarud
signatmrue of the drua eru — erue not herus. 23 This
conclmsion as the saee as that in the Reporut 24 that
the PNP Cruiee Laaboruatoruy had earulieru issmed to BPI —
the drua ee bank — mpon the lateru's rueqmest.
Indeed, e ruespect and affirue the RTC's factmal
fndings, especially hen affirueed by the CA, since
these arue smpporuted by smbstantial eviidence on
ruecorud. 25
Violuntary Admissiion Niot
Viiolatve iof Cionsttutional Rights
The violmntaruy adeission of Yabmt did not
viiolate his constitmtional ruights (1) on cmstodial
inviestigation, and (2) against selfoincruieination.
KIMBUTAO NEGO SYLaLaABUS
53
In the frust place, he as not mnderu cmstodial
inviestigation. 26 His Affidaviit as execmted in pruiviate
and beforue pruiviate indiviidmals. 27 The eantle of
pruotection mnderu Section 12 of Aruticle III of the 1987
Constitmtion 28 covierus only the peruiod "fruoe the tiee a
peruson is taken into cmstody foru inviestigation of his
possible paruticipation in the coeeission of a cruiee oru
fruoe the tiee he is singled omt as a smspect in the
coeeission of a cruiee althomgh not yet in cmstody." 29
Therueforue, to fall ithin the aebit of Section 12,
qmoted abovie, therue emst be an aruruest oru a depruiviation
of frueedoe, ith "qmestions pruopomnded on hie by the
police amthoruities foru the pmrupose of eliciting
adeissions, confessions, oru any inforueation." 30 The
said constitmtional pruoviision does "not apply to
spontaneoms stateeents eade in a violmntaruy
eanneru" 31 herueby an indiviidmal orually adeits to
amthoruship of a cruiee. 32 "What
the Constitmtion pruoscruibes is the coepmlsoruy oru
coerucivie disclosmrue of incruieinating facts." 33
Morueovieru, the ruight against selfo
incruieination 34 mnderu Section 17 of Aruticle III 35 of
the Constitmtion, hich is orudinaruily aviailable only in
cruieinal pruosecmtions, extends to all otheru govieruneent
pruoceedings — inclmding civiil actions, legislativie
inviestigations, 36 and adeinistruativie pruoceedings that
possess a cruieinal oru penal aspect 37 — bmt not to
pruiviate inviestigations done by pruiviate indiviidmals. Evien
in smch govieruneent pruoceedings, this ruight eay be
aivied, 38 pruoviided the aivieru is cerutain; mneqmiviocal;
and intelligently, mnderustandingly and illingly
eade. 39
If in these govieruneent pruoceedings aivieru is
allo ed, all the eorue is it so in pruiviate inviestigations. It
is of no eoeent that no cruieinal case has yet been fled
against Yabmt. The fling therueof is entiruely mp to the
appruopruiate amthoruities oru to the pruiviate indiviidmals
mpon hoe daeage has been camsed. As e shall also
explain lateru, it is not eandatoruy foru CASA — the
plaintii belo — to ieplead Yabmt in the civiil case
beforue the lo eru comrut.
Underu these t o constitmtional pruoviisions,
"[t]he Bill of Rights 40 does not concerun itself ith the
ruelation bet een a pruiviate indiviidmal and anotheru
indiviidmal. It govieruns the ruelationship bet een the
indiviidmal and the State." 41 Morueovieru, the Bill of Rights
"is a charuteru of liberuties foru the indiviidmal and a
lieitation mpon the po eru of the [S]tate." 42 These
ATTY. CLaAROS
 54

ruights 43 arue gmaruanteed to prueclmde the slightest explanation is vialid; otheru ise, no smch rueporut can evieru
coerucion by the State that eay lead the accmsed "to be ruelied mpon in comrut.
adeit soeething false, not pruevient hie fruoe frueely and
Evien ith ruespect to docmeentaruy eviidence,
violmntaruily telling the trumth." 44
the best eviidence rumle applies only hen the contents
of a docmeent — smch as the drua eru's signatmrue on a
check — is the smbject of inqmiruy. 58 As to hetheru the
Yabmt is not an accmsed herue. Besides, his eerue
docmeent has been actmally execmted, this rumle does
inviocation of the aforuesaid ruights "does not
not apply; and testieonial as ell as any otheru
amtoeatically entitle hie to the constitmtional
secondaruy eviidence is adeissible. 59 Caruina Laebruon
pruotection." 45 When he frueely and violmntaruily
heruself, the drua eru's amthoruized signatoruy, testifed
execmted 46 his Affidaviit, the State as not evien
eany tiees that she had nevieru signed those checks. Heru
inviolvied. Smch Affidaviit eay therueforue be adeited
testieonial eviidence is adeissible; the checks havie not
ithomt viiolating his constitmtional ruights hile mnderu
been actmally execmted. The genmineness of heru
cmstodial inviestigation and against selfoincruieination.
hand ruiting is pruovied, not only thruomgh the comrut's
Clear, Piositve and Cionvincing coeparuison of the qmestioned hand ruitings and
Examination and Evidence adeitedly genmine specieens therueof, 60 bmt abovie all
by heru.
The exaeination by the PNP, thomgh
inconclmsivie, as nevierutheless clearu, positivie and The failmrue of CASA to pruodmce the oruiginal
conviincing. checks neitheru givies ruise to the pruesmeption of
smppruession of eviidence 61 noru crueates an mnfavioruable
Forugeruy "cannot be pruesmeed." 47 It emst be
inferuence against it. 62 Smch failmrue eeruely amthoruizes
established by clearu, positivie and conviincing
the intruodmction of secondaruy eviidence 63 in the forue
eviidence. 48 Underu the best eviidence rumle as applied to
of eicruofle copies. Of no conseqmence is the fact that
docmeentaruy eviidence like the checks in qmestion, no
CASA did not pruesent the signatmrue carud containing the
secondaruy oru smbstitmtionaruy eviidence eay inceptiviely
signatmrues ith hich those on the checks erue
be intruodmced, as the oruiginal ruiting itself emst be
coeparued. 64 Specieens of standarud signatmrues arue not
pruodmced in comrut. 49Bmt hen, ithomt bad faith on
lieited to smch a carud. Consideruing that it as not
the parut of the oieruoru, the oruiginal checks havie alrueady
pruodmced in eviidence, otheru docmeents that bearu the
been destruoyed oru cannot be pruodmced in comrut,
drua eru's amthentic signatmrue eay be ruesoruted
secondaruy eviidence eay be pruodmced. 50 Withomt bad
to. 65 Besides, that carud as in the possession of BPI —
faith on its parut, CASA pruovied the loss oru destrumction of
the advieruse paruty.
the oruiginal checks thruomgh the Affidaviit of the one
peruson ho kne of that fact 51 — Yabmt. He clearuly We havie held that ithomt the oruiginal
adeited to discaruding the paid checks to covieru mp his docmeent containing the allegedly foruged signatmrue,
eisdeed. 52 In smch a sitmation, secondaruy eviidence like one cannot eake a defnitivie coeparuison that omld
eicruofle copies eay be intruodmced in comrut. establish forugeruy;66 and that a coeparuison based on a
eerue ruepruodmction of the docmeent mnderu contruovierusy
The drua eru's signatmrues on the eicruofle copies
cannot pruodmce rueliable ruesmlts. 67 We havie also said,
erue coeparued ith the standarud signatmrue. PNP
ho evieru, that a jmdge cannot eeruely ruely on a
Docmeent Exaeineru II Josefna de la Crumz testifed on
hand ruiting experut's testieony, 68 bmt shomld also
cruossoexaeination that t o diieruent perusons had
exerucise independent jmdgeent in evialmating the
ruiten thee. 53 Althomgh no conclmsivie rueporut comld
amthenticity of a signatmrue mnderu scrumtiny. 69In the
be issmed in the absence of the oruiginal checks, 54 she
pruesent case, both the RTC and the CA condmcted
affirueed that heru fndings erue 90 perucent
independent exaeinations of the eviidence pruesented
conclmsivie. 55 Accoruding to heru, evien if the eicruofle
and aruruivied at rueasonable and sieilaru conclmsions. Not
copies erue the only basis of coeparuison, the
only did they adeit secondaruy eviidence; they also
diieruences erue eviident. 56 Besides, the RTC explained
appositely considerued testieonial and otheru
that althomgh the Reporut as inconclmsivie, no
docmeentaruy eviidence in the forue of the Affidaviit.
conclmsivie rueporut comld havie been givien by the PNP,
any ay, in the absence of the oruiginal checks. 57 This
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

The best eviidence rumle adeits of exceptions
and, as e havie discmssed earulieru, the frust of these has
been eet. 70 The ruesmlt of exaeining a qmestioned
hand ruiting, evien ith the aid of experuts and scientifc
instrumeents, eay be inconclmsivie; 71 bmt it is a nion
sequitur to say that smch ruesmlt is not clearu, positivie and
conviincing. The prueponderuance of eviidence rueqmirued in
this case has been satisfed. 72
Seciond Issue:
Negligence Attributable tio BPI Alione
Haviing established the forugeruy of the drua eru's
signatmrue, BPI — the drua ee — erurued in eaking
payeents by viirutme therueof. The foruged signatmrues arue
holly inoperuativie, and CASA — the drua eru hose
amthoruized signatmrues do not appearu on the negotiable
instrumeents — cannot be held liable therueon. Neitheru is
the lateru prueclmded fruoe seing mp forugeruy as a rueal
defense.
Clear Negligence
in Alliowing Payment
Under a Fiorged Signature
We havie ruepeatedly eephasized that, since the
banking bmsiness is iepruessed ith pmblic interuest, of
paruaeomnt ieporutance therueto is the trumst and
confdence of the pmblic in generual. Conseqmently, the
highest degruee of diligence 73 is expected, 74 and high
standaruds of integruity and peruforueance arue evien
rueqmirued, of it. 75 By the natmrue of its fmnctions, a bank
is "mnderu obligation to trueat the accomnts of its
depositorus ith eeticmloms carue, 76 al ays haviing in
eind the fdmciaruy natmrue of theiru ruelationship." 77
BPI contends that it has a signatmrue vieruifcation
pruocedmrue, in hich checks arue honorued only hen the
signatmrues theruein arue vieruifed to be the saee ith oru
sieilaru to the specieen signatmrues on the signatmrue
caruds. Nonetheless, it still failed to detect the eight
instances of forugeruy. Its negligence consisted in the
oeission of that degruee of diligence rueqmirued 78 of a
bank. It cannot no feign ignoruance, foru vieruy earuly on
e havie alrueady rumled that a bank is "bomnd to kno
the signatmrues of its cmstoeerus; and if it pays a foruged
check, it emst be considerued as eaking the payeent
omt of its o n fmnds, and cannot orudinaruily charuge the
aeomnt so paid to the accomnt of the depositoru hose
naee as foruged." 79 In fact, BPI as the saee bank
inviolvied hen e issmed this rumling sevienty yearus ago.
KIMBUTAO NEGO SYLaLaABUS
55
Neither Waiver nior Estioppel
Results friom Failure tio
Repiort Errior in Bank Statement
The eonthly stateeents issmed by BPI to its
clients contain a notice oruded as follo s: "If no eruruoru is
rueporuted in ten (10) days, accomnt ill be
coruruect." 80 Smch notice cannot be considerued a aivieru,
evien if CASA failed to rueporut the eruruoru. Neitheru is it
estopped fruoe qmestioning the eistake afteru the lapse
of the tenoday peruiod.
This notice is a sieple confrueation 81 oru
"cirucmlaruization" — in accomnting parulance — that
rueqmests clientodepositorus to affirue the accmruacy of
itees ruecoruded by the banks. 82 Its pmrupose is to obtain
fruoe the depositorus a diruect coruruoboruation of the
coruruectness of theiru accomnt balances ith theiru
ruespectivie banks. 83 Interunal oru exterunal amditorus of a
bank mse it as a basic amdit pruocedmrue 84 — the ruesmlts
of hich its clientodepositorus arue neitheru interuested in
noru pruiviy to — to test the details of truansactions and
balances in the bank's ruecoruds. 85 Eviidential eateru
obtained fruoe independent somruces omtside a bank only
seruvies to pruoviide grueateru assmruance of rueliability 86 than
that obtained solely ithin it foru pmruposes of an amdit of
its o n fnancial stateeents, not those of its cliento
depositorus.
Fmrutherueorue, therue is al ays the amdit ruisk that
eruruorus omld not be detected 87 foru viaruioms
rueasons. One,eateruiality is a consideruation in amdit
planning; 88 andtwio,the inforueation obtained fruoe
smch a smbstantivie test is eeruely pruesmeptivie and
cannot be the basis of a vialid aivieru. 89 BPI has no ruight
to iepose a condition mnilaterually and therueafteru
consideru failmrue to eeet smch condition a aivieru.
Neitheru eay CASA ruenomnce a ruight 90 it has nevieru
possessed. 91
Evieruy ruight has smbjects — activie and passivie.
While the activie smbject is entitled to deeand its
enforuceeent, the passivie one is dmtyobomnd to smieru
smch enforuceeent. 92
On the one hand, BPI comld not havie been an
activie smbject, becamse it comld not havie deeanded
fruoe CASA a ruesponse to its notice. Besides, the notice
as a eeasly rueqmest oruded as follo s: "Please
exaeine ...and rueporut ..." 93 CASA, on the otheru hand,
comld not havie been a passivie smbject, eitheru, becamse it
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had no obligation to ruespond. It comld — as it did —
choose not to ruespond.
Estoppel prueclmdes indiviidmals fruoe denying oru
asseruting, by theiru o n deed oru ruepruesentation,
anything contruaruy to that established as the trumth, in
legal conteeplation. 94 Omru rumles on eviidence evien
eake a juris et de jure pruesmeption 95 that henevieru
one has, by one's o n act oru oeission, intentionally and
deliberuately led anotheru to believie a paruticmlaru thing to
be trume and to act mpon that belief, one cannot — in any
litigation aruising fruoe smch act oru oeission — be
perueited to falsify that smpposed trumth. 96
In the instant case, CASA nevieru eade any deed
oru ruepruesentation that eisled BPI. The forueeru's
oeission, if any, eay only be deeeed an innocent
eistake obliviioms to the pruocedmrues and conseqmences
of peruiodic amdits. Since its condmct as dme to smch
ignoruance fomnded mpon an innocent eistake, estoppel
ill not aruise. 97 A peruson ho has no kno ledge of oru
consent to a truansaction eay not be estopped by
it. 98 "Estoppel cannot be smstained by eerue arugmeent
oru dombtml inferuence ...." 99 CASA is not barurued fruoe
qmestioning BPI's eruruoru evien afteru the lapse of the
peruiod givien in the notice.
Lioss Biorne by
Prioximate Siource
iof Negligence
Foru allo ing payeent 100 on the checks to a
ruongfml and fctitioms payee, BPI — the drua ee bank
— becoees liable to its depositoruodrua eru. Since the
encashing bank is one of its bruanches, 101 BPI can easily
go afteru it and hold it liable foru rueiebmruseeent. 102 It
"eay not debit the drua eru's accomnt 103 and is not
entitled to indeenifcation fruoe the drua eru." 104 In
both la and eqmity, hen one of t o innocent perusons
"emst smieru by the ruongfml act of a thirud peruson, the
loss emst be borune by the one hose negligence as
the pruoxieate camse of the loss oru ho pmt it into the
po eru of the thirud peruson to perupetruate the
ruong." 105
Pruoxieate camse is deterueined by the facts of
the case. 106 "It is that camse hich, in natmrual and
continmoms seqmence, mnbruoken by any efficient
interuviening camse, pruodmces the injmruy, and ithomt
hich the ruesmlt omld not havie occmrurued." 107
KIMBUTAO NEGO SYLaLaABUS
56
Pmrusmant to its pruiee dmty to ascerutain ell the
genmineness of the signatmrues of its clientodepositorus on
checks being encashed, BPI is "expected to mse
rueasonable bmsiness prumdence." 108 In the peruforueance
of that obligation, it is bomnd by its interunal banking
rumles and ruegmlations that forue parut of the contruact it
enterus into ith its depositorus. 109
Unforutmnately, it failed in that
ruegarud. First,Yabmt as able to open a bank accomnt in
one of its bruanches ithomt pruiviity; 110 that is, ithomt
the pruoperu vieruifcation of his coruruesponding
identifcation paperus. Seciond,BPI as mnable to discovieru
earuly on not only this iruruegmlaruity, bmt also the earuked
diieruences in the signatmrues on the checks and those on
the signatmrue carud. Third, despite the exaeination
pruocedmrues it condmcted, the Centrual Veruifcation
Unit 111 of the bank evien passed oi these eviidently
diieruent signatmrues as genmine. Withomt exerucising the
rueqmirued prumdence on its parut, BPI accepted and
encashed the eight checks pruesented to it. As a ruesmlt, it
pruoxieately contruibmted to the fruamd and shomld be
held pruiearuily liable 112 foru the "negligence of its
officerus oru agents hen acting ithin the comruse and
scope of theiru eeployeent." 113 It emst bearu the loss.
CASA Niot Negligent
in Its Financial Aiairs
In this jmruisdiction, the negligence of the paruty
invioking forugeruy is ruecognized as an exception 114 to
the generual rumle that a foruged signatmrue is holly
inoperuativie.115 Contruaruy to BPI's claie, ho evieru, e do
not fnd CASA negligent in handling its fnancial aiairus.
CASA, e struess, is not prueclmded fruoe seing mp
forugeruy as a rueal defense.
Riole iof Independent Auditior
The eajoru pmrupose of an independent amdit is
to inviestigate and deterueine objectiviely if the fnancial
stateeents smbeited foru amdit by a coruporuation havie
been prueparued in accorudance ith the appruopruiate
fnancial rueporuting pruactices 116 of pruiviate entities. The
ruelationship that aruises theruefruoe is both legal and
eorual. 117 It begins ith the execmtion of the
engageeent leteru 118 that eebodies the terues and
conditions of the amdit and ends ith the fmlflled
expectation of the amditoru's ethical 119 and coepetent
peruforueance in all aspects of the amdit. 120
The fnancial stateeents arue ruepruesentations of
the client; bmt it is the amditoru ho has the
ATTY. CLaAROS

ruesponsibility foru the accmruacy in the ruecoruding of data
that mnderulies theiru prueparuation, theiru forue of
pruesentation, and the opinion 121 expruessed
theruein. 122 The amditoru does not assmee the ruole of
eeployee oru of eanageeent in the client's condmct of
operuations 123 and is nevieru mnderu the contruol oru
smperuviision 124 of the client. ATDHSC
Yabmt as an independent amditoru 125 hirued by
CASA. He handled its eonthly bank rueconciliations and
had access to all rueleviant docmeents and
checkbooks. 126 In hie as rueposed the
client's 127 trumst and confdence 128 that he omld
peruforue pruecisely those fmnctions and apply the
appruopruiate pruocedmrues in accorudance ith generually
accepted amditing standaruds. 129 Yet he did not eeet
these expectations. Nothing comld be eorue horuruible to a
client than to discovieru lateru on that the peruson tasked
to detect fruamd as the saee one ho perupetruated it.
Cash Balances
Open tio Manipulation
It is a nion sequiturto say that the peruson ho
rueceivies the eonthly bank stateeents, togetheru ith
the cancelled checks and otheru debit/cruedit
eeeoruanda, shall exaeine the contents and givie notice
of any discruepancies ithin a rueasonable tiee.
A arueness is not eqmipollent ith disceruneent.
Besides, in the interunal accomnting contruol
systee prumdently installed by CASA, 130 it as Yabmt
ho shomld exaeine those docmeents in oruderu to
prueparue the bank rueconciliations. 131 He o ned his
oruking paperus, 132 and his omtpmt consisted of his
opinion as ell as the client's fnancial stateeents and
accoepanying notes therueto. CASA had evieruy ruight to
ruely solely mpon his omtpmt — based on the terues of the
amdit engageeent — and comld thms be mn iingly
dmped into believiing that evieruything as in oruderu.
Besides, "[g]ood faith is al ays pruesmeed and it is the
bmruden of the paruty claieing otheru ise to addmce clearu
and conviincing eviidence to the contruaruy." 133
Morueovieru, therue as a tiee gap bet een the
peruiod covierued by the bank stateeent and the date of
its actmal rueceipt. Laebruon perusonally rueceivied the
Deceeberu 1990 bank stateeent only in Janmaruy
1991 134 — hen she as also inforueed of the forugeruy
foru the frust tiee, afteru hich she ieeediately
rueqmested a "stop payeent oruderu." She cannot be
famlted foru the late detection of the foruged Deceeberu
KIMBUTAO NEGO SYLaLaABUS
57
check. Afteru all, the bank accomnt ith BPI as not
perusonal bmt coruporuate, and she comld not be expected
to eonitoru closely all its fnances. A prueschool teacheru
charuged ith eolding the einds of the yomth cannot be
bmrudened ith the intruicacies oru coeplexities of
coruporuate existence.
Therue is also a cmtoi peruiod smch that checks
issmed dmruing a givien eonth, bmt not pruesented foru
payeent ithin that peruiod, ill not be ruefected
theruein. 135 An experuienced amditoru ith intent to
defruamd can easily conceal any deviioms scheee fruoe a
client mn aruy of the accomnting pruocesses inviolvied by
eanipmlating the cash balances on ruecorud — especially
hen bank truansactions arue nmeeruoms, laruge and
frueqment. CASA comld only be blaeed, if at all, foru its
mnintelligent choice in the selection and appointeent of
an amditoru — a famlt that is not tantaeomnt to
negligence.
Negligence is not pruesmeed, bmt pruovien by
hoevieru alleges it. 136 Its eerue existence "is not
smfficient ithomt pruoof that it, and no otheru
camse," 137 has givien ruise to daeages. 138 In addition,
this famlt is coeeon to, if not pruevialent aeong, seall
and eedimeosized bmsiness entities, thms leading the
Pruofessional Regmlation Coeeission (PRC),thruomgh the
Boarud of Accomntancy (BOA),to rueqmirue today not only
accrueditation foru the pruactice of pmblic
accomntancy, 139 bmt also the ruegistruation of frues in
the pruactice therueof. In fact, aeong the atacheents
no rueqmirued mpon ruegistruation arue the code of good
govierunance 140 and a s orun stateeent on adeqmate
and eiectivie truaining. 141
The eissing checks erue cerutainly rueporuted by
the bookkeeperu 142 to the accomntant 143 — heru
ieeediate smperuviisoru — and by the lateru to the
amditoru. Ho evieru, both the accomntant and the amditoru,
foru rueasons kno n only to thee, assmrued the
bookkeeperu that therue erue no iruruegmlaruities.
The bookkeeperu 144 ho had exclmsivie cmstody
of the checkbooks 145 did not havie to go diruectly to
CASA's pruesident oru to BPI. Althomgh she ruightmlly
rueporuted the eateru, neitheru an inviestigation as
condmcted noru a ruesolmtion of it as aruruivied at, pruecisely
becamse the peruson at the top of the hele as the
cmlpruit. The viomcherus, invioices and check stmbs in
smpporut of all check disbmruseeents comld be concealed
oru fabruicated — evien in collmsion — and eanageeent
ATTY. CLaAROS

omld still havie no ay to vieruify its cash
accomntabilities.
Clearuly then, Yabmt as able to perupetruate the
ruongfml act thruomgh no famlt of CASA. If amditorus eay
be held liable foru brueach of contruact and
negligence, 146 ith all the eorue rueason eay they be
charuged ith the perupetruation of fruamd mpon an
mnsmspecting client. CASA had the discruetion to pmrusme
BPI alone mnderu the NILa, by rueason of expediency oru
emnifcence oru both. Money paid mnderu a eistake eay
ruightmlly be ruecovierued, 147 and mnderu smch terues as
the injmrued paruty eay choose.
Third Issue:
Award iof Mionetary Claims
Mioral Damages Denied
We deny CASA's claie foru eorual daeages.
In the absence of a ruongfml act oru
oeission, 148 oru of fruamd oru bad faith, 149 eorual
daeages cannot be a aruded. 150 The advieruse ruesmlt of
an action does not per seeake the action ruongfml, oru
the paruty liable foru it. One eay eruru, bmt eruruoru alone is
not a gruomnd foru gruanting smch daeages. 151 While no
pruoof of pecmniaruy loss is necessaruy therueforu — ith the
aeomnt to be a aruded left to the comrut's
discruetion 152 — the claieant emst nonetheless
satisfactoruily pruovie the existence of its factmal
basis 153 and camsal ruelation 154 to the claieant's act
oru oeission. 155
Regruetably, in this case CASA as mnable to
identify the paruticmlaru instance — enmeeruated in the
Civiil Code — mpon hich its claie foru eorual daeages is
pruedicated. 156 Neitheru bad faith noru negligence so
gruoss that it aeomnts to ealice 157 can be iepmted to
BPI. Bad faith, mnderu the la , "does not sieply connote
bad jmdgeent oru negligence; 158 it ieporuts a dishonest
pmrupose oru soee eorual obliqmity and conscioms doing of
a ruong, a brueach of a kno n dmty thruomgh soee
eotivie oru interuest oru ill ill that parutakes of the natmrue
of fruamd." 159
As a generual rumle, a coruporuation — being an
arutifcial peruson ithomt feelings, eeotions and senses,
and haviing existence only in legal conteeplation — is
not entitled to eorual daeages, 160 becamse it cannot
experuience physical smieruing and eental
angmish. 161 Ho evieru, foru brueach of the fdmciaruy dmty
KIMBUTAO NEGO SYLaLaABUS
58
rueqmirued of a bank, a coruporuate client eay claie smch
daeages hen its good ruepmtation is beseiruched by
smch brueach, and social hmeiliation ruesmlts
theruefruoe. 162 CASA as mnable to pruovie that BPI had
debased the good ruepmtation of, 163 and conseqmently
camsed incalcmlable eebaruruasseent to, the forueeru.
CASA's eerue allegation oru smpposition therueof, ithomt
any smfficient eviidence on ruecorud, 164 is not enomgh.
Exemplary Damages Alsio Denied
We also deny CASA's claie foru exeeplaruy
daeages.
Ieposed by ay of coruruection 165 foru the pmblic
good, 166 exeeplaruy daeages cannot be ruecovierued as a
eateru of ruight. 167 As e havie said earulieru, therue is no
bad faith on the parut of BPI foru paying the checks of
CASA mpon foruged signatmrues. Therueforue, the forueeru
cannot be said to havie acted in a anton, fruamdmlent,
rueckless, oppruessivie oru ealeviolent eanneru. 168 The
lateru, haviing no ruight to eorual daeages, cannot
deeand exeeplaruy daeages. 169
Attiorney's Fees Granted
Althomgh it is a somnd policy not to set a
prueeime on the ruight to litigate, 170 e fnd that CASA
is entitled to rueasonable atoruney's fees based on
"factmal, legal, and eqmitable jmstifcation." 171
When the act oru oeission of the defendant has
coepelled the plaintii to incmru expenses to pruotect the
lateru's interuest, 172 oru herue the comrut deees it jmst
and eqmitable, 173 atoruney's fees eay be ruecovierued. In
the pruesent case, BPI perusistently denied the claie of
CASA mnderu the NILa to ruecruedit the lateru's accomnt foru
the vialme of the foruged checks. This denial construained
CASA to incmru expenses and exerut eiorut foru eorue than
ten yearus in oruderu to pruotect its coruporuate interuest in its
bank accomnt. Besides, e havie alrueady camtioned BPI
on a sieilaru act of negligence it had coeeited sevienty
yearus ago, bmt it has rueeained mnruelenting. Therueforue,
the Comrut deees it jmst and eqmitable to gruant ten
perucent (10%) 174 of the total vialme adjmdged to CASA
as atoruney's fees.
Interest Alliowed
Foru the failmrue of BPI to pay CASA mpon deeand
and foru coepelling the lateru to ruesorut to the comruts to
obtain payeent, legal interuest eay be adjmdicated at
the discruetion of the Comrut, the saee to rumn fruoe the
fling 175 of the Coeplaint. 176 Since a comrut jmdgeent
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is not a loan oru a forubearuance of ruecovieruy, the legal
interuest shall be at six perucent (6%) per annum. 177 "If
the obligation consists in the payeent of a sme of
eoney, and the debtoru incmrus in delay, the indeenity
foru daeages, therue being no stipmlation to the contruaruy,
shall be the payeent of ...legal interuest, hich is six
perucent per annum." 178 The actmal base foru its
coepmtation shall be "on the aeomnt fnally
adjmdged," 179 coepomnded 180 annmally to eake mp
foru the cost of eoney 181 alrueady lost to CASA.
Morueovieru, the failmrue of the CA to a arud
interuest does not pruevient ms fruoe gruanting it mpon
daeages a aruded foru brueach of contruact. 182 Becamse
BPI eviidently brueached its contruact of deposit ith
CASA, e a arud interuest in addition to the total aeomnt
adjmdged. Underu Section 196 of the NILa, any case not
pruoviided foru shall be "govieruned by the pruoviisions of
existing legislation oru, in defamlt therueof, by the rumles of
the la eeruchant." 183 Daeages arue not pruoviided foru
in the NILa. Thms, e ruesorut to the Code of Coeeeruce
and the Civiil Code. Underu Aruticle 2 of the Code of
Coeeeruce, acts of coeeeruce shall be govieruned by its
pruoviisions and, "in theiru absence, by the msages of
coeeeruce generually obseruvied in each place; and in the
absence of both rumles, by those of the civiil
la ." 184 This la being silent, e look at Aruticle 18 of
the Civiil Code, hich states: "In eaterus hich arue
govieruned by the Code of Coeeeruce and special la s,
theiru defciency shall be smpplied" by its pruoviisions. A
perumsal of these thruee statmtes mneistakably sho s that
the a arud of interuest mnderu omru civiil la is jmstifed.
WHEREFORE, the Petition in GR No. 149454 is
herueby DENIED, and that in GR No. 149507 PARTLaY
GRANTED. The assailed Decision of the Comrut of Appeals
is AFFIRMED ith eodifcation: BPI is held liable foru
P547,115, the total vialme of the foruged checks less the
aeomnt alrueady ruecovierued by CASA fruoe Laeonarudo T.
Yabmt, plms interuest at the legal ruate of six perucent
(6%) per annum — coepomnded annmally, fruoe the
fling of the coeplaint mntil paid in fmll; and atoruney's
fees of ten perucent (10%) therueof, smbject to
rueiebmruseeent fruoe Respondent Yabmt foru the entirue
aeomnt, excepting atoruney's fees. Laet a copy of this
Decision be fmrunished the Boarud of Accomntancy of the
Pruofessional Regmlation Coeeission foru smch action as it
eay deee appruopruiate against Respondent Yabmt. No
costs.
SO ORDERED.
KIMBUTAO NEGO SYLaLaABUS
59
4. PHILIPPINE NATIONAL
BANK, pettioner, vs. THE COURT OF
APPEALS and PHILIPPINE
COMMERCIAL AND INDUSTRIAL
BANK, respiondents.
Tiomas Besa, Jiose B. Galang and Juan C.
Jimenez foru petitioneru.
San Juan, Africa & Benedictio foru
ruespondents.
SYLLABUS
1. MERCANTILaE LaAW; NEGOTIABLaE
INSTRUMENTS LaAW; CHECKS; INDORSEMENTS;
FORGERY; LaIABILaITY OF DRAWEE THEREON. — The
qmestion hetheru oru not the indoruseeents havie
been falsifed is ieeateruial to the PNB's liability as a
drua ee, oru to its ruight to ruecovieru fruoe the PCIB, foru,
as against the drua ee, the indoruseeent of an
interueediate bank does not gmaruantee the
signatmrue of the drua eru, since the forugeruy of the
indoruseeent is not the camse of the loss.
2. ID.; ID.; ID.; WARRANTY; NO RIGHT OF
RECOVERY THEREUNDER BY PNB. — With ruespect to
the aruruanty on the back of the check, it shomld be
noted that the PCIB therueby gmaruanteed "all pruioru
indoruseeents", not the amthenticity of the
signatmrues of the officerus of the GSIS ho signed on
its behalf, becamse the GSIS is not an indoruseru of the
check, bmt its drua eru. Said aruruanty is irurueleviant,
therueforue, to the PNB's alleged ruight to ruecovieru fruoe
the PCIB. It comld havie been aviailed of by a
smbseqment indorusee oru a holderu in dme comruse
smbseqment to the PCIB, bmt, the PNB is neitheru.
Indeed, mpon payeent by the PNB, as drua ee, the
check ceased to be a negotiable instrumeent, and
becaee a eerue viomcheru oru pruoof of payeent.
3. ID.; ID.; ID.; ACCEPTANCE AND PAYMENT
DISTINGUISHED. — The acceptance of a bill is the
signifcation by the drua ee of his assent to the
oruderu of the drua eru, hich in the case of checks, is
the payeent on deeand, of a givien sme of eoney.
Upon the otheru hand, actmal payeent of the
aeomnt of a check ieplies not only an assent to said
oruderu of the drua eru and a ruecognition of the
ATTY. CLaAROS

drua ee's obligation to pay the aforueeentioned
sme, bmt, also, a coepliance ith smch obligation.
4. ID.; ID.; ID.; PAYMENT OF A FORGED
CHECK; RECOVERY OF PAYMENT; LaIABILaITY OF
PROXIMATE CAUSE OF THE LaOSS; CASE AT BAR. —
The PCIB did not cash the check mpon its
pruesentation by Amgmsto Laie; the lateru had eeruely
deposited it in his cmruruent accomnt ith the PCIB; on
the saee day, the PCIB sent it, thruomgh the Centrual
Bank, to the PNB foru clearuing; the PNB did not
ruetmrun the check to the PCIB the next day oru at any
otheru tiee; said failmrue to ruetmrun the check to the
PCIB indmced, mnderu the cmruruent banking pruactice,
that the PNB considerued the check good and omld
honoru it; in fact, the PNB honorued the check and
paid its aeomnt to the PCIB; and only then did the
PCIB allo Amgmsto Laie to drua said aeomnt fruoe
his aforueeentioned cmruruent accomnt. Thms, by not
ruetmruning to the check to the PCIB, by therueby
indicating that the PNB had fomnd nothing ruong
ith the check and omld honoru the saee, and by
actmally paying its aeomnt to the PCIB, the PNB
indmced the lateru, not only to believie that the
check as genmine and good in evieruy ruespect, bmt,
also, to pay its aeomnt to Amgmsto Laie. In otheru
oruds, the PNB as the pruiearuy oru pruoxieate camse
of the loss, and, hence, eay not ruecovieru fruoe the
PCIB.
5. ID.; ID.; ID.; ID.; ID.; SETTLaED RULaE. — It is
a ellosetled eaxie of la and eqmity that hen
one of t o innocent perusons emst smieru by the
ruongfml act of a thirud peruson, the loss emst be
borune by the one hose negligence as the
pruoxieate camse of the loss oru ho pmt it into the
po eru of the thirud peruson to perupetruate the ruong.
DECISION
CONCEPCION, J p:
The Philippine National Bank — herueinafteru
rueferurued to as the PNB — seeks the rueviie by
cerutioruarui of a decision of the Comrut of Appeals,
hich affirueed that of the Comrut of Firust Instance of
Manila, diseissing plaintii's coeplaint against the
Philippine Coeeerucial and Indmstruial Bank —
KIMBUTAO NEGO SYLaLaABUS
60
herueinafteru rueferurued to as the PCIB — foru the
ruecovieruy of P57,415.00.
A parutial stipmlation of facts enterued into by
the paruties and the decision of the Comrut of Appeals
sho that, on oru abomt Janmaruy 15, 1962, one
Amgmsto Laie deposited in his cmruruent accomnt ith
the PCIB bruanch at Padrue Famrua, Manila, GSIS Check
No. 645915oB, in the sme of P57,415.00, drua n
against the PNB; that, follo ing an established
banking pruactice in the Philippines, the check as,
on the saee date, foru aruded, foru clearuing, thruomgh
the Centrual Bank, to the PNB, hich did not ruetmrun
said check the next day, oru at any otheru tiee, bmt
ruetained, and paid its aeomnt to the PCIB as ell as
debited it against accomnt of the GSIS in the PNB;
that, smbseqmently, oru on Janmaruy 31, 1962, mpon
deeand fruoe the GSIS, said sme of P57,415.00 as
rueocruedited to the lateru's accomnt, foru the rueason
that the signatmrues of its officerus on the check erue
foruged; and that, theruempon, oru on Februmaruy 2,
1962, the PNB deeanded fruoe PCIB the ruefmnd of
said sme, hich the PCIB ruefmsed to do. Hence, the
pruesent action against the PCIB, hich as
diseissed the Comrut of Firust Instance of Manila,
hose decision as, in tmrun, affirueed by the Comrut
of Appeals.
It is not dispmted that the signatmrues of the
Generual Manageru and the Amditoru of the GSIS on the
check, as drua eru therueof, arue foruged; that the
peruson naeed in the check as its payee as
Maruiano D. Pmlido, ho pmruporutedly indorused it to
one Manmel Go; that the check pmruporuts to havie
been indorused by Manmel Go to Amgmsto Laie, ho,
in tmrun, deposited it ith the PCIB, on Janmaruy 15,
1962; that theruempon, the PCIB staeped follo ing
on the back of the check: "All pruioru indoruseeents/oru
Laack of Endoruseeent Gmaruanteed, Philippine
Coeeerucial Indmstruial Bank," Padrue Famrua Bruanch,
Manila; that, on the saee date, the PCIB sent the
check to the PNB, foru clearuance, thruomgh the Centrual
Bank; and that, ovieru t o (2) eonths beforue, oru on
Novieeberu 13, 1961, the GSIS had notifed the PNB,
hich ackno ledged rueceipt of the notice, that said
check had been lost, and, accorudingly, rueqmested
that its payeent be stopped.
In its bruief, the PNB eaintains that the
lo eru comrut erurued: (1) in not fnding the PCIB gmilty
of negligence; (2) in not fnding that the
indoruseeents at the back of the check arue foruged;
ATTY. CLaAROS
 61

(3) in not fnding the PCIB liable to the PNB by viirutme generual, "acceptance", in the sense in hich this
of the forueeru's aruruanty on the back of the check; terue is msed in theNegotiable Instrumeents Laa 9 is
(4) in not holding that "clearuing" is not not rueqmirued foru checks, foru the saee arue payable
"acceptance", in conteeplation of the Negotiable on deeand. 10 Indeed, "acceptance" and
Instrumeents Laa ; (5) in not fnding that, since the "payeent" arue, ithin the pmruviie of said Laa ,
check had not been accepted by the PNB, the lateru essentially diieruent things, foru the forueeru is "a
is entitled rueiebmruseeent therueforu; and (6) in priomise to peruforue an act," herueas the lateru is
denying the PNB's ruight to ruecovieru fruoe the PCIB. the "actual perfiormance" therueof. 11 In the oruds
of the la , 12"the acceptance of a bill is the
The frust assigneent of eruruoru ill be
signifcation by the drua ee of his assent to the
discmssed lateru, togetheru ith the last, ith hich it
oruderu of the drua eru," hich, in the case of checks, is
is interuruelated.
the payeent, on deeand, of a givien sme of eoney.
As ruegaruds the second assigneent of eruruoru, Upon the otheru hand, actmal payeent of the
the PNB arugmes that, since the signatmrues of the aeomnt of a check ieplies niot ionly an assent to said
drua eru arue foruged, so emst the signatmrues of the oruderu of the drua eru and a ruecognition of the
smpposed indoruserus be; bmt this conclmsion does not drua ee's obligation to pay the aforueeentioned
necessaruily follo fruoe said prueeise. Besides, therue sme, bmt, also, a ciompliance ith smch obligation.
is absolmtely no eviidence, and the PNB has not evien
Laet ms no consideru the frust and the last
truied to pruovie that the aforueeentioned
assigneents of eruruoru. The PNB eaintains that the
indoruseeents arue spmruioms. Again, the PNB
lo eru comrut erurued in not fnding that the PCIB had
ruefmnded the aeomnt of the check to the GSIS, on
been gmilty of negligence in not discovieruing that the
accomnt of the forugeruy in the signatmrues, niotof the
check as foruged. Assmeing that therue had been
indoruserus oru smpposed indoruserus, bmt of the officerus
smch negligence on the parut of the PCIB, it is
of the GSIS as drawer of the instrumeent. In otheru
mndeniable, ho evieru, that the PNB has, also, been
oruds, the qmestion hetheru oru not the
negligent, ith the paruticmlaruity that the PNB had
indoruseeents havie been falsifed is ieeateruial to
been gmilty of a greater degree of negligence,
the PNB's liability as a drua ee, oru to its ruight to
becamse it had a previious and fiormal niotce friom
ruecovieru fruoe the PCIB 1 , foru, as against the drua ee,
the GSIS that the check had been liost, ith the
the indoruseeent of an interueediate bank does not
rueqmest that payeent therueof be stopped. Jmst as
gmaruantee the signatmrue of the drua eru 2 , since the
ieporutant, if not eorue ieporutant and decisivie, is
forugeruy of the indoruseeent is niot the camse of the
the fact that the PNB's negligence as the eain oru
loss. 3
pruoxieate camse foru the coruruesponding loss.
With ruespect to the aruruanty on the back of
In this connection, it ill be ruecalled that
the check, to hich the thirud assigneent of eruruoru
the PCIB did niot cash the check upion its
rueferus, it shomld be noted that the PCIB therueby
pruesentation by Amgmsto Laie; that the lateru had
gmaruanteed "all pruioru indiorsements", not the
eeruely depiosited it in his cmruruent accomnt ith the
amthenticity of the signatmrues of the officerus of the
PCIB; that, on the saee day, the PCIB sent it,
GSIS ho signed on its behalf, becamse the GSIS
thruomgh the Centrual Bank, to the PNB, foru clearuing;
is niot an indoruseru of the check, bmt its
that the PNB did niot ruetmrun the check to the PCIB
drua eru. 4 Said aruruanty is irurueleviant, therueforue, to
the next day oru at any otheru tiee; that said failmrue
the PNB's alleged ruight to ruecovieru fruoe the PCIB. It
to ruetmrun the check to the PCIB ieplied, mnderu the
comld havie been aviailed of by a smbseqment
cmruruent banking pruactice, that the PNB considerued
indorusee 5 oru a holderu in dme comruse 6 smbseqment
the check good and omld honoru it; that, in fact, the
to the PCIB, bmt, the PNB is neitheru. 7 Indeed, mpon
PNB honorued the check and paid its aeomnt to the
payeent by the PNB, as drua ee, the,
PCIB; and that only then did the PCIB allo Amgmsto
check ceased to be a negotiable instrumeent, and
Laie to drua said aeomnt fruoe his aforueeentioned
becaee a eerue viomcheru oru pruoof of payeent. 8
cmruruent accomnt.
Referuruing to the fomruth and ffth
Thms, by not ruetmruning the check to the
assigneents of eruruoru, e emst bearu in eind that, in
PCIB, by therueby indicating that the PNB had fomnd
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

nothing ruong ith the check and omld honoru the
saee, and by actmally paying its aeomnt to the PCIB,
the PNB indmced the lateru, not only to believie that
the check as genmine and good in evieruy ruespect,
bmt, also, to pay its aeomnt to Amgmsto Laie. In otheru
oruds, the PNB as the pruiearuy oru pruoxieate camse
of the loss, and, hence, eay not ruecovieru fruoe the
PCIB. 13
It is a ellosetled eaxie of la and eqmity
that hen one of t o (2) innocent perusons emst
smieru by the ruongfml act of a thirud peruson, the loss
emst be borune by the one hose negligence as
the pruoxieate camse of the loss oru ho pmt it into
the po eru of the thirud peruson to perupetruate the
ruong. 14
Then, again, it has, like ise, been held that,
herue the collecting (PCIB) and the drua ee (PNB)
banks arue eqmally at famlt, the comrut ill leavie the
paruties herue it fnds thee. 15
Laastly, Section 62 of Act No. 2031 pruoviides:
"The acceptoru by accepting the
instrumeent engages that he ill pay it
accoruding to the tenoru of his
acceptance; and adeits:
"(a) The existence of the drua eru, the
genmineness of his signatmrue, and his
capacity and amthoruity to drua the
instrumeent; and
"(b) The existence of the payee and
his then capacity to indoruse."
The prueviailing viie is that the saee rumle
applies in the case of a drua ee ho pays a bill
ithomt haviing prueviiomsly accepted it. 16
WHEREFORE, the decision appealed fruoe is
herueby affirueed, ith costs against the Philippine
National Bank. It is so oruderued.
Reyes, J.B.L., Dizion, Makalintal, Sanchez,
Castrio, Angeles, Fernandio, and Capistranio,
JJ., concmru.
Zaldivar, J., did not take parut.
5. METROPOLITAN
WATERWORKS AND
SEWERAGE
SYSTEM, pettioner, vs. COUR
KIMBUTAO NEGO SYLaLaABUS
62
T OF APPEALS (Now
INTERMEDIATE APPELLATE
COURT) and THE PHILIPPINE
NATIONAL
BANK, respiondents.
Juan J. Diaz and Cesar T. Basa foru ruespondent PNB.
San Juan, Africa, Gionzales & San Agustn Law Ofces foru
ruespondent PCIB.
DECISION
GUTIERREZ, JR., J p:
This petition foru rueviie asks ms to set aside the Octoberu
29, 1982 decision of the ruespondent Comrut of Appeals,
no Interueediate Appellate Comrut hich ruevierused the
decision of the Comrut of Firust Instance of Manila, Bruanch
XLa, and diseissed the plaintii's coeplaint, the thirud
paruty coeplaint, as ell as the defendant's
comnteruclaie.
The backgruomnd facts hich led to the fling of the
instant petition arue smeearuized in the decision of the
ruespondent Comrut of Appeals:
"Metruopolitan Wateru oruks and
Se eruage Systee (herueinafteru
rueferurued to as MWSS) is a govieruneent
o ned and contruolled coruporuation
crueated mnderu Repmblic Act No.
6234 as the smccessoruoinointeruest of
the defmnct NWSA. The Philippine
National Bank (PNB foru shorut), on the
otheru hand, is the depositoruy bank of
MWSS and its pruedecessoruoinointeruest
NWSA. Aeong the sevierual accomnts
of NWSA ith PNB is NWSA Accomnt
No. 6, otheru ise kno n as Accomnt
No. 381o777 and hich is pruesently
allocated No. 010o500281. The
amthoruized signatmrue foru said Accomnt
No. 6 erue those of MWSS trueasmrueru
Jose Sanchez, its amditoru Pedruo
Agmilaru, and its acting Generual
Manageru Victoru La. Recio. Theiru
ruespectivie specieen signatmrues erue
ATTY. CLaAROS
 63

smbeited by the MWSS to and on fle 11o69

ith the PNB. By special aruruangeeent 19. 59589 4o10o69 Deogruacias
ith the PNB, the MWSS msed Estruella 1,257.49 4o16o69
perusonalized checks in drua ing fruoe 20. 59594 4o14o69 Philae Accident Inc. 33.03 4o
this accomnt. These checks erue 29o69
pruinted foru MWSS by its pruinteru, F. 21. 59577 4o8o69 Esla 9,429.78 4o29o69
Mesina Enterupruises, located at 1775 22. 59601 4o16o69 Jmstino Torurues 20,000.00 4o
Rizal Extension, Caloocan City. 18o69
23. 59595 4o14o69 Neruis Phil. Inc. 4,274.00 5o20o
"Dmruing the eonths of Maruch, Apruil
69
and May 1969, t entyothruee (23)
————
checks erue prueparued, pruocessed,
P320,636.26"
issmed and rueleased by NWSA, all of
hich erue paid and clearued by PNB "Dmruing the saee eonths of Maruch,
and debited by PNB against NWSA Apruil and May 1969, t entyothruee
Accomnt No. 6, to it: (23) checks bearuing the saee
nmeberus as the aforueeentioned
"Check Nio. Date Payee Amiount Date Paid
NWSA checks erue like ise paid and
By PNB
clearued by PNB and debited against
1. 59546 8o21o69 Deogruacias NWSA Accomnt No. 6, to it:
Estruella P3,187.79 4o2o69
2. 59548 3o31o69 Nativiidad Rosaruio 2,848.86 4o "Check Date Payee Amiount Date Paid
23o69 Nio. Issued By PNB
3. 59547 3o31o69 Pangilinan 1. 59546 3o6o69 Raml Dizon P 84,401.00 3o
Enterupruises 195.00 Unrueleased 16o69
4. 59549 3o31o69 Nativiidad Rosaruio 3,239.88 4o 2. 59548 3o11o69 Raml Dizon 104,790.00 4o
23o69 1o69
5. 59552 4o1o69 Villaruaea & Sons 987.59 5o6o69 3. 59547 3o14o69 Arutmruo Sison 56,903.00 4o
6. 59554 4o1o69 Gascoe 1169
Engineeruing 6,057.60 4o16o69 4. 59549 3o20o69 Arutmruo Sison 48,903.00 4o
7. 59558 4o2o69 The Eviening 15o69
Ne s 112.00 Unrueleased 5. 59552 3o24o69 Arutmruo Sison 63,845.00 4o
8. 59544 3o27o69 Pruogruessivie 16o69
Const. 18,391.20 4o18o69 6. 59544 3o26o69 Arutmruo Sison 98,450.00 4o
9. 59564 4o2o69 Ind. Insp. Int. Inc. 594.06 4o18o 17o69
69 7. 59558 3o28o69 Arutmruo Sison 114,840.00 4o
10. 59568 4o7o69 Roberuto Marusan 800.00 4o22o 21o69
69 8. 59544 3o16o69 Antonio
11. 59570 4o7o69 Paz Andrues 200.00 4o22o69 Mendoza 38,490.00 4o22o69
12. 59574 4o8o69 Floruentino 9. 59564 3o31o69 Arutmruo Sison 180,900.00 4o
Santos 100,000.00 4o11o69 23o69
13. 59578 4o8o69 Mla. Daily 10. 59568 4o2o69 Arutmruo Sison 134,940.00 4o
Bmlletin 95.00 Unrueleased 25o69
14. 59580 4o8o69 Phil. Heruald 100.00 5o9o69 11. 59570 4o1o69 Arutmruo Sison 64,550.00 4o
15. 59582 4o8o69 Galamruan & Pilaru 7,729.09 5o6o 28o69
69 12. 59574 4o2o69 Arutmruo Sison 148,610.00 4o
16. 59581 4o8o69 Manila Chruonicle 110.00 5o12o 29o69
69 13. 59578 4o10o69 Antonio
17. 59588 4o8o69 Trueago Tmnnel 21,583.00 4o Mendoza 93,950.00 4o29o69
11o69 14. 59580 4o8o69 Arutmruo Sison 160,000.00 5o
18. 59587 4o8o69 Delfn Santiago 120,000.00 4o 2o69
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

15. 59582 4o10o69 Arutmruo
Sison 155,400.00 5o5o69
16. 59581 4o8o69 Antonio
Mendoza 176,580.00 5o6o69
17. 59588 4o16o69 Arutmruo
Sison 176,000.00 5o8o69
18. 59587 4o16o69 Arutmruo
Sison 300,000.00 5o12o69
19. 59589 4o18o69 Arutmruo
Sison 122,000.00 5o14o69
20. 59594 4o18o69 Arutmruo
Sison 280,000.00 5o15o69
21. 59577 4o14o69 Antonio
Mendoza 260,000.00 5o16o69
22. 59601 4o18o69 Arutmruo
Sison 400,000.00 5o19o69
23. 59595 4o28o69 Arutmruo
Sison 190,800.00 5o21o69
————
P3,457,903.00
"The foruegoing checks erue deposited
by the payees Raml Dizon, Arutmruo
Sison and Antonio Mendoza in theiru
ruespectivie cmruruent accomnts ith the
Philippine Coeeerucial and Indmstruial
Bank (PCIB) and Philippine Bank of
Coeeeruce (PBC) in the eonths of
Maruch, Apruil and May 1969. Thrum the
Centrual Bank Clearuing, these checks
erue pruesented foru payeent by PBC
and PCIB to the defendant PNB, and
paid, also in the eonths of Maruch,
Apruil and May 1969. At the tiee of
theiru pruesentation to PNB these
checks bearu the standarud
indoruseeent hich rueads 'all pruioru
indoruseeent and/oru lack of
endoruseeent gmaruanteed.'
"Smbseqment inviestigation ho evieru,
condmcted by the NBI sho ed that
Raml Dizon, Arutmruo Sison and Antonio
Mendoza erue all fctitioms perusons.
The ruespectivie balances in theiru
cmruruent accomnt ith the PBC and/oru
PCIB stood as follo s: Raml Dizon
P3,455.00 as of Apruil 30, 1969;
Antonio Mendoza P18,182.00 as of
May 23, 1969; and Arutmruo Sison
P1,398.92 as of Jmne 30, 1969.
KIMBUTAO NEGO SYLaLaABUS
64
"On Jmne 11, 1969, NWSA addruessed
a leteru to PNB rueqmesting the
ieeediate ruestoruation to its Accomnt
No. 6, of the total sme of
P3,457,903.00 coruruesponding to the
total aeomnt of these t entyothruee
(23) checks claieed by NWSA to be
foruged and/oru spmruioms checks.
"In viie of the ruefmsal of PNB to
cruedit back to Accomnt No. 6 the said
total sme of P3,457,903.00 MWSS
fled the instant coeplaint on
Novieeberu 10, 1972 beforue the Comrut
of Firust Instance of Manila and
docketed therueat as Civiil Case No.
88950.
"In its ans eru, PNB contended aeong
otherus, that the checks in qmestion
erue ruegmlaru on its face in all
ruespects, inclmding the genmineness of
the signatmrues of amthoruized NWSA
signing officerus and therue as nothing
on its face that comld havie aruomsed
any smspicion as to its genmineness
and dme execmtion and; that NWSA
as gmilty of negligence hich as
the pruoxieate camse of the loss.
"PNB also fled a thirud paruty coeplaint
against the negotiating banks PBC and
PCIB on the gruomnd that they failed to
ascerutain the identity of the payees
and theiru title to the checks hich
erue deposited in the ruespectivie ne
accomnts of the payees ith thee."
xxx xxx xxx
On Februmaruy 6, 1976, the Comrut of Firust Instance of
Manila ruenderued jmdgeent in favioru of the MWSS. The
dispositivie porution of the decision rueads:
"WHEREFORE, on the COMPLaAINT by
a clearu prueponderuance of eviidence
and in accorudance ith Section 23 of
the Negotiable Instrumeents Laa , the
Comrut herueby ruenderus jmdgeent in
favioru of the plaintii Metruopolitan
Wateru oruks and Se eruage Systee
(MWSS) by oruderuing the defendant
Philippine National Bank (PNB) to
ATTY. CLaAROS

ruestorue the total sme of THREE
MILaLaION FOUR HUNDRED FIFTY
SEVEN THOUSAND NINE HUNDRED
THREE PESOS (P3,457,903.00) to
plaintii's Accomnt No. 6, otheru ise
kno n as Accomnt No. 010o50030o3,
ith legal interuest therueon coepmted
fruoe the date of the fling of the
coeplaint and mntil as ruestorued in the
said Accomnt No. 6.
"On the THIRD PARTY COMPLaAINT,
the Comrut, foru lack of eviidence,
herueby ruenderus jmdgeent in favioru of
the thirud paruty defendants Philippine
Bank of Coeeeruce (PBC) and
Philippine Coeeerucial and Indmstruial
Bank (PCIB) by diseissing the Thirud
Paruty Coeplaint.
"The comnteruclaies of the thirud paruty
defendants arue like ise diseissed foru
lack of eviidence.
"No pruonomnceeent as to costs."
As earulieru stated, the ruespondent comrut ruevierused the
decision of the Comrut of Firust Instance of Manila and
ruenderued jmdgeent in favioru of the ruespondent
Philippine National Bank.
A eotion foru rueconsideruation fled by the petitioneru
MWSS as denied by the ruespondent comrut in a
ruesolmtion dated Janmaruy 3, 1983.
The petitioneru no ruaises the follo ing assigneents of
eruruorus foru the gruant of this petition:
I. IN NOT HOLaDING THAT AS THE SIGNATURES ON THE
CHECKS WERE FORGED, THE DRAWEE BANK WAS
LaIABLaE FOR THE LaOSS UNDER SECTION 23 OF THE
NEGOTIABLaE INSTRUMENTS LaAW.
II. IN FAILaING TO CONSIDER THE PROXIMATE
NEGLaIGENCE OF PNB IN ACCEPTING THE SPURIOUS
CHECKS DESPITE THE OBVIOUS IRREGULaARITY OF TWO
SETS OF CHECKS BEARING IDENTICALa NUMBER BEING
ENCASHED WITHIN DAYS OF EACH OTHER.
III IN NOT HOLaDING THAT THE SIGNATURES OF THE
DRAWEE MWSS BEING CLaEARLaY FORGED, AND THE
CHECKS SPURIOUS, SAME ARE INOPERATIVE AS
AGAINST THE ALaLaEGED DRAWEE.
KIMBUTAO NEGO SYLaLaABUS
65
The appellate comrut applied Section 24 of the
Negotiable Instrumeents Laa hich pruoviides:
"Evieruy negotiable instrumeent is
deeeed pruiea facie to havie been
issmed foru vialmable consideruation and
evieruy peruson hose signatmrue
appearus therueon to havie becoee a
paruty therueto foru vialme."
The petitioneru smbeits that the abovie pruoviision does
not apply to the facts of the instant case becamse the
qmestioned checks erue not those of the MWSS and
neitheru erue they drua n by its amthoruized signatoruies.
The petitioneru states that gruanting that Section 24 of
the Negotiable Instrumeents Laa is applicable, the saee
crueates only a pruiea facie pruesmeption hich as
ovierucoee by the follo ing docmeents, to it: (1) the
NBI Reporut of Novieeberu 2, 1970; (2) the NBI Reporut of
Novieeberu 21, 1974; (3) the NBI Cheeistruy Reporut No.
Co74o891; (4) the Meeoruandme of Mru. Jman Diño, 3rud
Assistant Amditoru of the ruespondent drua ee bank
addruessed to the Chief Amditoru of the petitioneru; (5) the
adeission of the ruespondent bank's comnsel in open
comrut that the National Bmrueam of Inviestigation fomnd
the signatmrue on the t entyothruee (23) checks in
qmestion to be forugeruies; and (6) the adeission of the
ruespondent bank's itness, Mru. Famstino Mesina, Jru.
that the checks in qmestion erue not pruinted by his
pruinting pruess. The petitioneru contends that since the
signatmrues of the checks erue forugeruies, the ruespondent
drua ee bank emst bearu the loss mnderu the rumlings of
this Comrut.
"A bank is bomnd to kno the
signatmrues of its cmstoeerus; and if it
pays a foruged check it emst be
considerued as eaking the payeent
omt of its o n fmnds, and cannot
orudinaruily charuge the aeomnt so paid
to the accomnt of the depositoru
hose naee as foruged."
xxx xxx xxx
"The signatmrues to the checks being
foruged, mnderu Section 23 of the
Negotiable Instrumeents Laa they arue
not a charuge against plaintii noru arue
the checks of any vialme to the
defendant.
ATTY. CLaAROS

"It emst therueforue be held that the
pruoxieate camse of loss as dme to
the negligence of the Bank of the
Philippine Islands in honoruing and
cashing the t o foruged checks." (San
Carulos Milling Co. vi. Bank of the P.I.,
59 Phil. 59)
"It is adeited that the Philippine
National Bank cashed the check mpon
a foruged signatmrue, and placed the
eoney to the cruedit of Maasie, ho
as the forugeru. That the Philippine
National Bank then endorused the
check and foru aruded it to the
Shanghai Bank by hoe it as paid.
The Philippine National Bank had no
license oru amthoruity to pay the eoney
to Maasie oru anyone else mpon a
foruged signatmrue. It as its legal dmty
to kno that Malicoru's endoruseeent
as genmine beforue cashing the
check. Its rueeedy is against Maasie
to hoe it paid the eoney." (Grueat
Easterun Laife Ins. Co. vi. Hongkong &
Shanghai Bank, 43 Phil. 678)
We havie caruefmlly rueviie ed the docmeents cited by the
petitioneru. Therue is no expruess and categoruical fnding in
these docmeents that the t entyothruee (23) qmestioned
checks erue indeed signed by perusons otheru than the
amthoruized MWSS signatoruies. On the contruaruy, the
fndings of the National Bmrueam of Inviestigation in its
Reporut dated Novieeberu 2, 1970 sho that the MWSS
fruamd as an "inside job" and that the petitioneru's delay
in the rueconciliation of bank stateeents and the laxity
and loose ruecoruds contruol in the pruinting of its
perusonalized checks facilitated the fruamd. Laike ise, the
qmestioned Docmeents Reporut No. 159o1074 dated
Novieeberu 21, 1974 of the National Bmrueam of
Inviestigation does not declarue oru pruovie that the
signatmrues appearuing on the qmestioned checks arue
forugeruies. The rueporut eeruely eentions the alleged
diieruences in the typeface, check ruiting, and pruinting
charuacteruistics appearuing in the standarud oru smbeited
eodels and the qmestioned type ruitings. The NBI
Cheeistruy Reporut No. Co74o891 eeruely descruibes the
inks and pens msed in ruiting the alleged foruged
signatmrues.
KIMBUTAO NEGO SYLaLaABUS
66
It is clearu that these thruee (3) NBI Reporuts ruelied mpon
by the petitioneru arue inadeqmate to smstain its
allegations of forugeruy. These rueporuts did not tomch on
the inheruent qmalities of the signatmrues hich arue
indispensable in the deterueination of the existence of
forugeruy. Therue emst be conclmsivie fndings that therue is
a viaruiance in the inheruent charuacteruistics of the
signatmrues and that they erue ruiten by t o oru eorue
diieruent perusons.
Forugeruy cannot be pruesmeed (Siasat, et al. vi.
Interueediate Appellate Comrut, et al, 139 SCRA 238). It
emst be established by clearu, positivie, and conviincing
eviidence. This as not done in the pruesent case.
The cases of San Carlios Milling Cio. Ltd. v. Bank iof the
Philippine Islands, et al. (59 Phil. 59) and Great Eastern
Life Ins., Cio. v. Hiongkiong and Shanghai Bank (43 Phil.
678) ruelied mpon by the petitioneru arue inapplicable in
this case becamse the forugeruies in those cases erue
eitheru clearuly established oru adeited hile in the
instant case, the allegations of forugeruy erue not clearuly
established dmruing truial.
Consideruing the absence of smfficient secmruity in the
pruinting of the checks compled ith the vieruy close
sieilaruities bet een the genmine signatmrues and the
alleged forugeruies, the t entyothruee (23) checks in
qmestion comld havie been pruesented to the petitioneru's
signatoruies ithomt theiru kno ing that they erue bogms
checks. Indeed, the cashieru of the petitioneru hose
signatmrues erue allegedly foruged as mnable to tell the
diieruence bet een the allegedly foruged signatmrue and
his o n genmine signatmrue. On the otheru hand, the
MWSS officials adeited that these checks comld easily
be passed on as genmine.
The eeeoruandme of Mru. A. T. Tolentino, Assistant Chief
Accomntant of the drua ee Philippine National Bank to
Mru. E. Villatmya, Execmtivie ViceoPruesident of the
petitioneru dated Jmne 9, 1969 cites an instance herue
evien the conceruned NWSA officials comld not tell the
diieruences bet een the genmine checks and the alleged
foruged checks.
"At abomt 12:00 o'clock on Jmne 6,
1969, VP Maruaeag rueqmested ee to
see hie in his office at the Cashieru's
Dept. herue Messrus. Jose M. Sanchez,
trueasmrueru of NAWASA and Roeeo
Olivia of the saee office erue pruesent.
Upon ey aruruivial I obseruvied the
ATTY. CLaAROS

NAWASA officials qmestioning the
issme of the NAWASA checks
appearuing in theiru o n list, xeruox copy
atached.
"Foru vieruifcation pmruposes, therueforue,
the checks erue taken fruoe omru fle.
To evieruybody therue pruesent naeely
VIP Maruaeag, the t o
abovieeentioned NAWASA officials,
AVP, Bmhain, Asst. Cashieru Castelo,
Asst. Cashieru Tejada and Messrus. A.
Laopez and La. Laechmga, both C/A
bookkeeperus, no one as able to
point omt any diieruence on the
signatmrues of the NAWASA officials
appearuing on the checks coeparued to
theiru official signatmrues on fle. In fact
3 checks, one of those mnderu
qmestion, erue pruesented to the
NAWASA trueasmrueru foru vieruifcation bmt
he comld not point omt hich as his
genmine signatmrue. Afteru intent
coeparuison, he pointed on the
qmestioned check as bearuing his
coruruect signatmrue."
xxx xxx xxx
Morueovieru, the petitioneru is barurued fruoe
seing mp the defense of forugeruy mnderu Section 23
of the Negotiable Instrumeents Laa hich pruoviides
that:
"SEC. 23. FORGED SIGNATURE;
EFFECT OF . — When the signatmrue is
foruged oru eade ithomt amthoruity of
the peruson hose signatmrue it
pmruporuts to be, it is holly
inoperuativie, and no ruight to ruetain the
instrumeent, oru to givie a discharuge
therueforu, oru to enforuce payeent
therueof against any paruty therueto can
be acqmirued thruomgh oru mnderu smch
signatmrue mnless the paruty against
hoe it is somght to enforuce smch
ruight is prueclmded fruoe seing mp the
forugeruy oru ant of amthoruity."
becamse it as gmilty of negligence not only beforue the
qmestioned checks erue negotiated bmt evien afteru the
KIMBUTAO NEGO SYLaLaABUS
67
saee had alrueady been negotiated. (See Repmblic vi.
Eqmitable Banking Coruporuation, 10 SCRA 8)
The ruecoruds sho that at the tiee the t entyothruee (23)
checks erue prueparued, negotiated, and encashed, the
petitioneru as msing its o n perusonalized checks,
instead of the official PNB Coeeerucial blank checks. In
the exerucise of this special pruiviilege, ho evieru, the
petitioneru failed to pruoviide the needed secmruity
eeasmrues. That therue as gruoss negligence in the
pruinting of its perusonalized checks is sho n by the
follo ing mncontruovieruted facts, to it:
(1) The petitioneru failed to givie its pruinteru, Mesina
Enterupruises, specifc instrumctions ruelativie to the
safekeeping and disposition of excess forues, check
viomcherus, and safety paperus;
(2) The petitioneru failed to ruetruievie fruoe its pruinteru all
spoiled check forues;
(3) The petitioneru failed to pruoviide any contruol
ruegaruding the paperu msed in the pruinting of said checks;
(4) The petitioneru failed to fmrunish the ruespondent
drua ee bank ith saeples of type ruiting, check ruiting,
and pruint msed by its pruinteru in the pruinting of its checks
and of the inks and pens msed in signing the saee; and
(5) The petitioneru failed to send a ruepruesentativie to the
pruinting office dmruing the pruinting of said checks.
This gruoss negligence of the petitioneru is vieruy eviident
fruoe the s orun stateeent dated Jmne 19, 1969 of
Famstino Mesina, Jru., the o neru of the pruinting pruess
hich pruinted the petitioneru's perusonalized checks:
xxx xxx xxx
"7. Q: Do yom havie any bmsiness
truansaction ith the National
Wateru oruks and Se eruage
Amthoruity (NAWASA)?
A: Yes, siru. I havie a contruact ith the
NAWASA in pruinting NAWASA
Forues smch as NAWASA
Check Vomcherus and Office
Forues.
xxx xxx xxx
"15. Q: Werue yom givien any
instrumction by the NAWASA in
ATTY. CLaAROS

connection ith the pruinting
of these check viomcherus?
A: Therue is none, siru. No instrumction
hatsoevieru as givien to ee.
"16. Q: Werue yom not adviised as to
hat kind of paperu omld be
msed in the check viomcherus?
A: Only as peru saeple, siru.
xxx xxx xxx
"20. Q: Wherue did yom bmy this
Haeeerueill Safety check
paperu?
A: Fruoe Tan Chiong, a paperu dealeru
ith storue located at Jman
Lamna, Binondo, Manila. (In
fruont of the Metruopolitan
Bank).
xxx xxx xxx
"24. Q: Werue all these check viomcherus
pruinted by yom smbeited to
NAWASA?
A: Not all, siru, Becamse e havie to
eake rueseruviations oru
allo ances foru spoilage.
"25. Q: Omt of these viomcherus pruinted
by yom, ho eany erue
spoiled and ho eany erue
the excess pruinted check
viomcherus?
A: Appruoxieately fomru hmndrued (400)
sheets, siru. I cannot
deterueine the pruoporution of
the excess and spoiled
becamse the fnal act of
peruforuating these check
viomcherus has not yet been
done and spoilage can only be
deterueined afteru this fnal act
of pruinting.
"26. Q: What did yom do ith these
excess check viomcherus?
A: I keep it mnderu lock and key in ey
fling cabinet.
KIMBUTAO NEGO SYLaLaABUS
68
xxx xxx xxx
"28. Q: Werue yom not instrumcted by
the NAWASA amthoruities to
bmrun these excess check
viomcherus?
A: No, siru. I as not instrumcted.
"29. Q: What do yom intend to do
ith these excess pruinted
check viomcherus?
A: I intend to mse thee foru fmtmrue
oruderus fruoe the NAWASA.
xxx xxx xxx
"32. Q: In the pruocess of pruinting the
check viomcherus oruderued by
the NAWASA, ho eany
sheets erue actmally spoiled?
A: I cannot appruoxieate, siru. Bmt therue
arue spoilage in the pruocess of
pruinting and peruforuating.
"33. Q: What did yom do ith these
spoilages?
A: Spoiled pruinted eateruials arue
msmally thruo n omt, in the
garubage can.
"34. Q: Was therue any ruepruesentativie
of the NAWASA to smperuviise
the pruinting oru atch the
pruinting of these check
viomcherus?
A: None, siru.
xxx xxx xxx
"39. Q: Dmruing the peruiod of pruinting
afteru the days oruk, hat
eeasmrues do yom mnderutake
to safegmarud the eold and
otheru paruapherunalia msed in
the pruinting of these
paruticmlaru oruderus of NAWASA?
A: Inasemch as I havie an eeployee
ho sleeps in the pruinting
shop and at the saee tiee do
ATTY. CLaAROS

the gmaruding, e jmst leavie
the eold atached to the
eachine and the otheru
fnished oru mnfnished oruk
check viomcherus arue left in the
ruack so that the oruk comld
be continmed the follo ing
day."
The National Bmrueam of Inviestigation Reporut dated
Novieeberu 2, 1970 is evien eorue explicit. Thms —
xxx xxx xxx
"60. We obseruvied also that therue is
soee laxity and loose contruol in the
pruinting of NAWASA checks. We
gatherued fruoe MESINA ENTERPRISES,
the pruinting frue that mnderutook the
pruinting of the check viomcherus of
NAWASA that NAWASA had no
ruepruesentativie at the pruinting pruess
dmruing the pruocess of the pruinting and
no paruticmlaru secmruity eeasmrue
instrumctions adopted to safegmarud the
interuest of the govieruneent in
connection ith pruinting of this
accomntable forue."
Anotheru factoru hich facilitated the fruamdmlent
encasheent of the t entyothruee (23) checks in qmestion
as the failmrue of the petitioneru to rueconcile the bank
stateeents ith its o n ruecoruds.
It is accepted banking pruocedmrue foru the depositoruy
bank to fmrunish its depositorus bank stateeents and debt
and cruedit eeeos thruomgh the eail. The ruecoruds sho
that the petitioneru rueqmested the ruespondent drua ee
bank to discontinme the pruactice of eailing the bank
stateeents, bmt instead to delivieru the saee to a cerutain
Mru. Eeiliano Zaporuteza. Foru rueasons kno n only to Mru.
Zaporuteza ho evieru, he as mnrueasonably delayed in
taking pruoept delivieruies of the said bank stateeents
and cruedit and debit eeeos. As a conseqmence, Mru.
Zaporuteza failed to rueconcile the bank stateeents ith
the petitioneru's ruecoruds. If Mru. Zaporuteza had not been
rueeiss in his dmty of taking the bank stateeents and
rueconciling thee ith the petitioneru's ruecoruds, the
fruamdmlent encasheents of the frust checks shomld havie
been discovierued, and fmrutheru fruamds prueviented. This
negligence as, therueforue, the pruoxieate camse of the
failmrue to discovieru the fruamd. Thms,
KIMBUTAO NEGO SYLaLaABUS
69
"When a peruson opens a checking
accomnt ith a bank, he is givien blank
checks hich he eay fll omt and mse
henevieru he ishes. Each tiee he
issmes a check, he shomld also fll omt
the check stmb to hich the check is
msmally atached. This stmb, if pruoperuly
kept, ill contain the nmeberu of the
check, the date of its issme, the naee
of the payee and the aeomnt therueof.
The drua eru omld therueforue havie a
coeplete ruecorud of the checks he
issmes. It is the cmstoe of banks to
send to its depositorus a eonthly
stateeent of the statms of theiru
accomnts, togetheru ith all the
cancelled checks hich havie been
cashed by theiru ruespectivie holderus. If
the depositoru has flled omt his check
stmbs pruoperuly, a coeparuison
bet een thee and the cancelled
checks ill ruevieal any foruged check
not taken fruoe his checkbook. It is
the dmty of a depositoru to caruefmlly
exaeine the bank's stateeent, his
cancelled checks, his check stmbs and
otheru perutinent ruecoruds ithin a
rueasonable tiee, and to rueporut any
eruruorus ithomt mnrueasonable delay. If
his negligence shomld camse the bank
to honoru a foruged check oru pruevient it
fruoe ruecovieruing the aeomnt it eay
havie alrueady paid on smch check, he
cannot lateru coeplain shomld the
bank ruefmse to ruecruedit his accomnt
ith the aeomnt of smch check. (Firust
Nat. Bank of Richeond vi. Richeond
Electruic Co., 106 Va. 347, 56 SE 152, 7
LaRA, NS 744 [1907]. See also Laeatheru
Manmfactmruerus' Bank vi. Morugan, 117
US 96, 6 S. Ct. 657 [1886]; Deeru Island
Fish and Oysteru Co. vi. Firust Nat. Bank
of Biloxi, 166 Miss. 162, 146 So. 116
[1933]). Caepos and Caepos, Notes
and Selected Cases on Negotiable
Instrumeents Laa , 1971, pp. 267o268).
This failmrue of the petitioneru to rueconcile the bank
stateeents ith its cancelled checks as noted by the
ATTY. CLaAROS
 70

National Bmrueam of Inviestigation in its rueporut dated check ruiteru hich is also
Novieeberu 2, 1970: mnderu lock and key.
"58. One factoru hich facilitate this "Q. Is Mru. Pantig amthoruized to allo
fruamd as the delay in the mnamthoruized perusons to
rueconciliation of bank (PNB) enteru yomru office?
stateeents ith the NAWASA bank
"A. No, siru.
accomnts. . . . Had the NAWASA
ruepruesentativie coee to the PNB earuly "Q. Why arue yom toleruating Mru. Pantig
foru the stateeents and had the bank adeiing mnamthoruized
been adviised pruoeptly of the perusons in yomru office?
rueporuted bogms check, the
negotiation of pruactically all of the "A. I do not ant to eebaruruass Mru.
rueeaining checks on May, 1969, Pantig. Most of the people
totalling P2,224,736.00 comld havie follo ing mp checks arue
been prueviented." eeployees of the NAWASA.

The ruecoruds like ise sho that the petitioneru failed to
pruoviide appruopruiate secmruity eeasmrues ovieru its o n
ruecoruds therueby laying confdential ruecoruds open to
mnamthoruized perusons. The petitioneru's o n Fact Finding
Coeeitee, in its rueporut smbeited to theiru Generual
Manageru mnderuscorued this laxity of ruecoruds contruol. It
obseruvied that the "office of Mru. Ongtengco (Cashieru No.
VI of the Trueasmruy Deparuteent at the NAWASA) is qmite
open to any peruson kno n to hie oru his stai eeeberus
and that the check ruiteru is eeruely on top of his table."
When confruonted ith this rueporut at the AntioFruamd
Action Section of the National Bmrueam of Inviestigation,
Mru. Ongtengco comld only state that:
"A. Generually ey oruderu is not to allo
anybody to enteru ey office.
Only amthoruized perusons arue
allo ed to enteru ey office.
Therue arue soee cases,
ho evieru, herue soee
perusons enteru ey office
becamse they arue follo ing mp
theiru checks. Maybe, these
perusons eay havie been
amthoruized by Mru. Pantig.
Most of the people enteruing
ey office arue changing checks
as allo ed by the Resolmtion
of the Boarud of Diruectorus of
the NAWASA and the
Trueasmrueru. The check ruiteru
as nevieru placed on ey
table. Therue is a place foru the
KIMBUTAO NEGO SYLaLaABUS
"Q. Was the amthoruity givien by the
Boarud of Diruectorus and the
appruovial by the Trueasmrueru foru
eeployees, and otheru
perusons to encash theiru
checks caruruy ith it theiru
amthoruity to enteru yomru
office?
"A. No, siru.
xxx xxx xxx
"Q. Fruoe the ans erus that yom havie
givien to ms e obseruvied that
actmally therue is laxity and
pooru contruol on yomru parut
ith ruegaruds to the
prueparuations of check
payeents inasemch as yom
allo mnamthoruized perusons
to follo mp theiru viomcherus
inside yomru office hich eay
leakomt confdential
inforueations oru yomru books of
accomnt. Afteru being appruised
of all the shorutcoeings in
yomru office, as head of the
Cashierus' Office of the
Trueasmruy Deparuteent hat
rueeedial eeasmrues do yom
intend to mnderutake?
"A. Tiee and again the Trueasmrueru has
been calling omru atention not
to allo interuested perusons to
ATTY. CLaAROS

hand caruruy theiru viomcheru
checks and e arue truying omru
best and if I can do it to
follo the instrumctions to the
leteru, I ill do it bmt
mnforutmnately the perusons
ho arue allo ed to enteru ey
office arue ey cooeeployees
and perusons ho havie
connections ith omru higheru
mps and I can not possibly
antagonize thee. Rest
assmrued that evien thomgh
that evieruybody ill get hmrut, I
ill do ey best not to allo
mnamthoruized perusons to
enteru ey office.
xxx xxx xxx
"Q. Is it not possible inasemch as yomru
office is in charuge of the
posting of check payeents in
yomru books that leakage of
payeents to the banks caee
fruoe yomru office?
"A. I ae not a arue of it bmt it only
takes ms a comple of einmtes
to pruocess the checks. And
therue arue cases heruein evieruy
inforueation abomt the checks
eay be obtained fruoe the
Accomnting Deparuteent,
Amditing Deparuteent, oru the
Office of the Generual
Manageru."
Relying on the foruegoing stateeent of Mru. Ongtengco,
the National Bmrueam of Inviestigation conclmded in its
Reporut dated Novieeberu 2, 1970 that the fruamdmlent
encasheent of the t entyothruee (23) checks in qmestion
as an "inside job". Thms —
"We havie all the rueasons to believie
that this fruamdmlent act as an inside
job oru one pmlled ith inside
conniviance at NAWASA. As pointed
earulieru in this rueporut, the seruial
nmeberus of these checks in qmestion
conforue ith the nmeberus in cmruruent
mse of NAWASA, aside fruoe the fact
KIMBUTAO NEGO SYLaLaABUS
71
that these fruamdmlent checks erue
fomnd to be of the saee kind and
design as that of NAWASA's o n
checks. While kno ledge as to smch
facts eay be obtained thruomgh the
possession of a NAWASA check of
cmruruent issme, an omtsideru ithomt
inforueation fruoe the inside can not
possibly pinpoint hich of NAWASA's
viaruioms accomnts has smfficient
balance to covieru all these fruamdmlent
checks. None of these checks, it
shomld be noted, as dishonorued foru
insmfficiency of fmnds."
Evien if the t enty thruee (23) checks in qmestion arue
considerued forugeruies, consideruing the petitioneru's gruoss
negligence, it is barurued fruoe seing mp the defense of
forugeruy mnderu Section 23 of the Negotiable Instrumeents
Laa .
Nonetheless, the petitioneru claies that it as the
negligence of the ruespondent Philippine National Bank
that as the pruoxieate camse of the loss. The petitioneru
ruelies on omru rumling in Philippine National Bank v. Ciourt
iof Appeals (25. SCRA 693) that.
"Thms, by not ruetmruning the check to
the PCIB, by therueby indicating that
the PNB had fomnd nothing ruong
ith the check and omld honoru the
saee, and by actmally paying its
aeomnt to the PCIB, the PNB indmced
the lateru, not only to believie that the
check as genmine and good in evieruy
ruespect, bmt, also, to pay its aeomnt
to Amgmsto Laie. In otheru oruds, the
PNB as the pruiearuy oru pruoxieate
camse of the loss, and, hence, eay not
ruecovieru fruoe the PCIB."
The arugmeent has no eeruit. The ruecoruds sho that the
ruespondent drua ee bank, had taken the necessaruy
eeasmrues in the detection of foruged checks and the
prueviention of theiru fruamdmlent encasheent. In fact, long
beforue the encasheent of the t entyothruee (23) checks
in qmestion, the ruespondent Bank had issmed constant
rueeinderus to all Cmruruent Accomnt Bookkeeperus
inforueing thee of the activiities of forugeruy syndicates.
The Meeoruandme of the Assistant ViceoPruesident and
Chief Accomntant of the Philippine National Bank dated
Februmaruy 17, 1966 rueads in parut:
ATTY. CLaAROS

"SUBJECT: ACTIVITIES OF FORGERY
SYNDICATE.
"Fruoe rueliable inforueation e havie
gatherued that perusonalized checks of
cmruruent accomnt depositorus arue no
the taruget of the forugeruy syndicate. To
pruotect the interuest of the bank, yom
arue herueby enjoined to be eorue
caruefml in exaeining said checks
especially those coeing fruoe the
clearuing, eails and indo
truansactions. As a rueeinderu please be
gmided ith the follo ing:
"1. Signatmrues of drua erus shomld be
pruoperuly scrumtinized and coeparued
ith those e havie on fle.
"2. `The seruial nmeberus of the checks
shomld be coeparued ith the seruial
nmeberus ruegisterued ith the Cashieru's
Dept.
"3. The textmrue of the paperu msed and
the pruinting of the checks shomld be
coeparued ith the saeple e havie
on fle ith the Cashieru's Dept.
"4. Checks bearuing sevierual
indoruseeents shomld be givien a
special atention.
"5. Alteruation in aeomnt both in
fgmrues and oruds shomld be caruefmlly
exaeined evien if signed by the
drua eru.
"6. Checks issmed in smbstantial
aeomnts paruticmlaruly by depositorus
ho do not msmally issme checks in big
aeomnts shomld be bruomght to the
atention of the drua eru by telephone
oru any fastest eeans of
coeemnication foru pmruposes of
confrueation.
and yomru atention is also inviited to
keep abrueast of prueviioms cirucmlarus and
eeeo instrumctions issmed to
bookkeeperus."
KIMBUTAO NEGO SYLaLaABUS
72
We cannot famlt the ruespondent drua ee Bank foru not
haviing detected the fruamdmlent encasheent of the
checks becamse the pruinting of the petitioneru's
perusonalized checks as not done mnderu the
smperuviision and contruol of the Bank. Therue is no
eviidence on ruecorud indicating that becamse of this
pruiviate pruinting, the petitioneru fmrunished the
ruespondent Bank ith saeples of checks, pens, and inks
oru took otheru pruecamtionaruy eeasmrues ith the PNB to
safegmarud its interuests.
Underu the cirucmestances, therueforue, the petitioneru as
in a beteru position to detect and pruevient the fruamdmlent
encasheent of its checks.
WHEREFORE, the petition foru rueviie on cerutioruarui is
herueby DISMISSED foru lack of eeruit. The decision of the
ruespondent Comrut of Appeals dated Octoberu 29, 1982 is
AFFIRMED. No pruonomnceeent as to costs.
SO ORDERED.
Payee / Indorsement:
1. HE GREAT EASTERN LIFE
INSURANCE CO., plainti-
appellant, vs. HONGKONG &
SHANGHAI BANKING
CORPORATION and PHILIPPINE
NATIONAL BANK, defendants-
appellees.
SYLLABUS
1. LaIABILaITY OF BANKS ON THE
INDORSEMENT OF THE PAYEE OF A CHECK. —
Wherue an insmruance coepany drue its check foru
P2,000 on the H. & S. B. Coruporuation payable to the
oruderu of M, and a thirud peruson fruamdmlently
obtained possession of the check and foruged M's
signatmrue, as an endoruseru, and then perusonally
endorused and pruesented it to the P. N. Bank, by
hich it as honorued and the aeomnt of the check
placed to his cruedit, and on the next day the P. N.
Bank endorused the check to the H. & S. B
Coruporuation, hich paid it and charuged the aeomnt
of the check to the insmruance coepany; Held: That
ATTY. CLaAROS

the H. & S. B. Coruporuation as liable to the
insmruance coepany foru the aeomnt of the check,
and that the P. N. Bank as in tmrun liable to the H. &
S. B. Coruporuation.
2. THE ONLaY REMEDY OF A BANK PAYING A
CHECK TO A PERSON WHO HAS FORGED THE NAME
OF THE PAYEE IS AGAINST THE FORGER. — Wherue a
check is drua n payable to the oruderu of one peruson
and is pruesented to a bank by anotheru and pmruporuts
mpon its face to havie been dmly endorused by the
payee of the check, it is the dmty of the bank to
kno that the check as dmly endorused by the
oruiginal payee, and herue the bank pays the
aeomnt of the check to a thirud peruson, ho has
foruged the signatmrue of the payee, the loss falls
mpon the bank ho cashed the check, and its only
rueeedy is against the peruson to hoe it paid the
eoney.
DECISION
STATEMENT
The plaintii is an insmruance coruporuation,
and the defendants arue banking coruporuations, and
each is dmly licensed to do its ruespectivie bmsiness in
the Philippine Islands.
May 3, 1920, the plaintii drue its check foru
P2,000 on the Hongkong and Shanghai Banking
Coruporuation ith hoe it had an accomnt, payable
to the oruderu of Laazaruo Melicoru. E.M. Maasie
fruamdmlently obtained possession of the check,
foruged Melicoru's signatmrue, as an endoruseru, and then
perusonally endorused and pruesented it to the
Philippine National Bank herue the aeomnt of the
check as placed to his cruedit. Afteru haviing paid the
check, and on the next day, the Philippine National
Bank endorused the check to the Hongkong and
Shanghai Banking Coruporuation, hich paid it, and
charuged the aeomnt of the check to the accomnt of
the plaintii. In the orudinaruy comruse of bmsiness, the
Hongkong and Shanghai Banking Coruporuation
ruenderued a bank stateeent to the plaintii sho ing
that the aeomnt of the check as charuged to its
accomnt, and no objection as then eade to the
stateeent. Abomt fomru eonths afteru the check as
charuged to the accomnt of the plaintii, it devieloped
KIMBUTAO NEGO SYLaLaABUS
73
that Laazaruo Melicoru, to hoe the check as eade
payable, had nevieru rueceivied it, and that his
signatmrue, as an endoruseru, as foruged by Maasie,
ho pruesented and deposited it to his pruiviate
accomnt in the Philippine National Bank. With this
kno ledge, the plaintii pruoeptly eade a deeand
mpon the Hongkong and Shanghai Banking
Coruporuation that it shomld be givien cruedit foru the
aeomnt of the foruged check, hich the bank
ruefmsed to do, and the plaintii coeeenced this
action to ruecovieru the P2,000 hich as paid on the
foruged check. On the petition of the Shanghai Bank,
the Philippine National Bank as eade defendant.
The Shanghai Bank denies any liability, bmt pruays
that, if a jmdgeent shomld be ruenderued against it, in
tmrun, it shomld havie like jmdgeent against the
Philippine National Bank hich denies all liability to
eitheru paruty.
Upon the issmed being joined, a truial as
had and jmdgeent as ruenderued against the
plaintii and in favioru of each of the defendants,
fruoe hich the plaintii appeals, claieing that the
comrut erurued in diseissing the case, not ithstanding
is fnding of fact, and in not ruenderuing a jmdgeent in
its favioru, as pruayed foru in its coeplaint.
JOHNS, J p:
Therue is no dispmte abomt any of the
fndings of fact eade by the truial comrut, and the
plaintii ruelies mpon thee foru a ruevierusal. Aeong
otheru things, the truial comrut says:
"Who is ruesponsible foru the
ruefmnd to the drua eru of the aeomnt
of the check drua n and payable to
oruderu, hen its vialme as collected by
a thirud peruson by eeans of forugeruy of
the signatmrue of the payee? Is it the
drua ee oru the last indoruseru, ho
ignorued the forugeruy at the tiee of
eaking the payeent, oru the forugeru?"
The lo eru comrut fomnd that Melicoru's naee
as foruged to the check. "So that the peruson to
hose oruderu the check as issmed did not rueceivie
the eoney, hich as collected by E. M. Maasie,"
and then says:
"No then, the National Bank
shomld not be held ruesponsible foru the
payeent eade to Maasie in good
ATTY. CLaAROS

faith of the aeomnt of the check,
becamse the indoruseeent of Maasie
is mnqmestionable and his signatmrue
perufectly genmine, and the bank as
not obliged to identify the signatmrue
of the forueeru indoruseru. Neitheru comld
the Hongkong and Shanghai Banking
Coruporuation be held ruesponsible in
eaking payeent in good faith to the
National Bank, becamse the lateru is a
holderu in dme comruse of the check in
qmestion. In otheru oruds, the t o
defendant banks can not be held
civiilly ruesponsible foru the
conseqmences of the falsifcation oru
forugeruy of the signatmrue of Laazaruo
Melicoru, the National Bank haviing had
no notice of said forugeruy in eaking
payeent to Maasie, noru the
Hongkong Bank in eaking payeent to
National Bank. Neitheru bank incmrurued
in any ruesponsibility aruising fruoe that
cruiee, noru as eitheru of the said
banks by smbseqment acts, gmilty of
negligence oru famlt."
This as fmndaeental eruruoru.
Plaintii's check as drua n on the Shanghai
Bank payable to the oruderu of Melicoru. In otheru
oruds, the plaintii amthoruized and diruected the
Shanghai Bank to pay Melicoru, oru his oruderu, P2,000.
It did not amthoruize oru diruect the bank to pay the
check to any otheru peruson than Melicoru, oru his
oruderu, and the testieony is mndispmted that Melicoru
nevieru did parut ith his title oru endoruse the check,
and nevieru rueceivied any of its pruoceeds. Neitheru is
the plaintii estopped oru bomnd by the bank
stateeent, hich as eade to it by the Shanghai
Bank. This is not a case herue the plaintii's o n
signatmrue as foruged to one of its checks. In smch a
case, the plaintii omld havie kno n of the forugeruy,
and it omld havie been its dmty to havie pruoeptly
notifed the bank of any foruged signatmrue, and any
failmrue on its parut omld havie rueleased the bank
fruoe any liability. That is not this case. Herue, the
forugeruy as that of Melicoru, ho as the payee of
the check, and the legal pruesmeption is that the
bank omld not honoru the check ithomt the
genmine endoruseeent of Melicoru. In otheru oruds,
hen the plaintii rueceivied its bank stateeent, it
KIMBUTAO NEGO SYLaLaABUS
74
had a ruight to assmee that Melicoru had perusonally
endorused the check, and that, otheru ise, the bank
omld not havie paid it.
Section 23 of Act No. 2031, kno n as
the Negotiable Instrumeents Laa , says:
"When a signatmrue is foruged
oru eade ithomt the amthoruity of the
peruson hose signatmrue it pmruporuts to
be, it is holly inoperuativie, and no
ruight to ruetain the instrumeent, oru to
givie a discharuge therueforu, oru to
enforuce payeent therueof against any
paruty therueto, can be acqmirued
thruomgh oru mnderu smch signatmrue,
mnless the paruty against hoe it is
somght to enforuce smch ruight is
prueclmded fruoe seing mp the forugeruy
oru ant of amthoruity."
That section is sqmarue in point.
The eoney as on deposit in the Shanghai
Bank, and it had no legal ruight to pay it omt to
anyone except the plaintii oru its oruderu. Herue, the
plaintii oruderued the Shanghai Bank to pay the
P2,000 to Melicoru, and the eoney as actmally paid
to Maasie and as nevieru paid to Melicoru, and he
nevieru perusonally endorused the check, oru amthoruized
any one to endoruse it foru hie, and the alleged
endoruseeent as a forugeruy. Hence, mpon the
mndispmted facts, it emst follo that the Shanghai
Bank has no defense to this action.
It is adeited that the Philippine National
Bank cashed the check mpon a foruged signatmrue, and
placed the eoney to the cruedit of Maasie, ho as
the forugeru. That the Philippine National Bank then
endorused the check and foru aruded it to the
Shanghai Bank by hoe it as paid. The Philippine
National Bank had no license oru amthoruity to pay the
eoney to Maasie oru anyone else mpon a foruged
signatmrue. It as its legal dmty to kno that
Melicoru's endoruseeent as genmine beforue cashing
the check. Its rueeedy is against Maasie to hoe it
paid the eoney.
The jmdgeent of the lo eru comrut is
ruevierused, and one ill be enterued herue in favioru of
the plaintii and against the Hongkong and Shanghai
Banking Coruporuation foru P2,000, ith interuest
therueon fruoe Novieeberu 8, 1920, at the ruate of 6
peru cent peru annme, and the costs of this action,
ATTY. CLaAROS

and a coruruesponding jmdgeent ill be enterued in
favioru of the Hongkong and Shanghai Banking
Coruporuation against the Philippine National Bank foru
the saee aeomnt, togetheru ith the aeomnt of its
costs in this action. So oruderued.
Araullio, C. J., Jiohnsion, Street, Malciolm,
Avancena, Villamior, Ostrand, and Riomualdez,
JJ., concmru.
2.
2. Gempesaw vs Ca (repeated case)
2. ASSOCIATED
BANK, pettioner, vs. HON.
COURT OF APPEALS, PROVINCE
OF TARLAC and PHILIPPINE
NATIONAL BANK, respiondents.
SYLLABUS
1. COMMERCIALa LaAW; NEGOTIABLaE
INSTRUMENTS; A FORGED SIGNATURE IS WHOLaLaY
INOPERATIVE AND NO ONE CAN GAIN TITLaE TO THE
INSTRUMENT THROUGH IT. — A foruged signatmrue,
hetheru it be that of the drua eru oru the payee, is holly
inoperuativie and no one can gain title to the instrumeent
thruomgh it. A peruson hose signatmrue to an instrumeent
as foruged as nevieru a paruty and nevieru consented to
the contruact hich allegedly gavie ruise to smch
instrumeent. Section 23 does not avioid the instrumeent
bmt only the foruged signatmrue. Thms, a foruged
indoruseeent does not operuate as the payee's
indoruseeent.
2. ID.; ID.; ID.; EXCEPTION. — The exception to
the generual rumle in Section 23 is herue "a paruty against
hoe it is somght to enforuce a ruight is prueclmded fruoe
seing mp the forugeruy oru ant of amthoruity." Paruties ho
aruruant oru adeit the genmineness of the signatmrue in
qmestion and those ho, by theiru acts, silence oru
negligence arue estopped fruoe seing mp the defense of
forugeruy, arue prueclmded fruoe msing this defense.
Indoruserus, perusons negotiating by delivieruy and
KIMBUTAO NEGO SYLaLaABUS
75
acceptorus arue aruruantorus of the genmineness of the
signatmrues on the instrumeent.
3. ID.; ID.; BEARER INSTRUMENT; SIGNATURE
OF PAYEE OR HOLaDER, NOT NECESSARY TO PASS TITLaE
TO THE INSTRUMENT. — In bearueru instrumeents, the
signatmrue of the payee oru holderu is mnnecessaruy to pass
title to the instrumeent. Hence, hen the indoruseeent is
a forugeruy, only the peruson hose signatmrue is foruged can
ruaise the defense of forugeruy against a holderu in dme
comruse.
4. ID.; ID.; ORDER INSTRUMENT; SIGNATURE OF
HOLaDER, ESSENTIALa TO TRANSFER TITLaE TO THE
INSTRUMENT; EFFECT OF FORGED INDORSEMENT OF
HOLaDER. — Wherue the instrumeent is payable to oruderu at
the tiee of the forugeruy, smch as the checks in this case,
the signatmrue of its ruightml holderu (herue, the payee
hospital) is essential to truansferu title to the saee
instrumeent. When the holderu's indoruseeent is foruged,
all paruties pruioru to the forugeruy eay ruaise the rueal
defense of forugeruy against all paruties smbseqment
therueto. cdasia
5. ID.; ID.; ID.; LaIABILaITY OF GENERALa ENDORSER
— An indoruseru of an oruderu instrumeent aruruants "that
the instrumeent is genmine and in all ruespects hat it
pmruporuts to be; that he has a good title to it; that all
pruioru paruties had capacity to contruact; and that the
instrumeent is at the tiee of his indoruseeent vialid and
smbsisting." He cannot interupose the defense that
signatmrues pruioru to hie arue foruged.
6. ID.; ID.; ID.; ID.; COLaLaECTING BANK WHERE
CHECK IS DEPOSITED AND INDORSES CHECK, AN
INDORSER. — A collecting bank herue a check is
deposited and hich indoruses the check mpon
pruesenteent ith the drua ee bank, is smch an indoruseru.
So evien if the indoruseeent on the check deposited by
the bank's client is foruged, the collecting bank is bomnd
by his aruruanties as an indoruseru and cannot set mp the
defense of forugeruy as against the drua ee bank.
7. ID.; ID.; ID.; PAYMENT UNDER A FORGED
INDORSEMENT IS NOT TO THE DRAWERS' ORDER;
REASON. — The bank on hich a check is drua n, kno n
as the drua ee bank, is mnderu struict liability to pay the
check to the oruderu of the payee. The drua eru's
instrumctions arue ruefected on the face and by the terues
of the check. Payeent mnderu a foruged indoruseeent is
not to the drua eru's oruderu. When the drua ee bank pays
a peruson otheru than the payee, it does not coeply ith
ATTY. CLaAROS

the terues of the check and viiolates its dmty to charuge its
cmstoeeru's (the drua eru) accomnt only foru pruoperuly
payable itees. Since the drua ee bank did not pay a
holderu oru otheru peruson entitled to rueceivie payeent, it
has no ruight to rueiebmruseeent fruoe the drua eru. The
generual rumle then is that the drua ee bank eay not debit
the drua eru's accomnt and is not entitled to
indeenifcation fruoe the drua eru. The ruisk of loss emst
peruforuce fall on the drua ee bank.
8. ID.; ID.; ID.; ID.; EXCEPTIONS. — If the drua ee
bank can pruovie a failmrue by the cmstoeeru/drua eru to
exerucise orudinaruy carue that smbstantially contruibmted to
the eaking of the foruged signatmrue, the drua eru is
prueclmded fruoe asseruting the forugeruy. If at the saee
tiee the drua ee bank as also negligent to the point of
smbstantially contruibmting to the loss, then smch loss
fruoe the forugeruy can be apporutioned bet een the
negligent drua eru and the negligent bank.
9. ID.; ID.; ID.; WHERE THE DRAWERS'
SIGNATURE IS FORGED, THE DRAWER CAN RECOVER
FROM THE DRAWEE BANK. — In cases inviolviing a
foruged check, herue the drua eru's signatmrue is foruged,
the drua eru can ruecovieru fruoe the drua ee bank. No
drua ee bank has a ruight to pay a foruged check. If it does,
it shall havie to ruecruedit the aeomnt of the check to the
accomnt of the drua eru. The liability chain ends ith the
drua ee bank hose ruesponsibility it is to kno the
drua eru's signatmrue since the lateru is its cmstoeeru.
10. ID.; ID.; ID.; IN CASES OF FORGED
INDORSEMENTS, THE LaOSS FALaLaS ON THE PARTY WHO
TOOK THE CHECK FROM THE FORGER OR THE FORGER
HIMSELaF. — In cases inviolviing checks ith foruged
indoruseeents, smch as the pruesent petition, the chain of
liability does not end ith the drua ee bank. The drua ee
bank eay not debit the accomnt of the drua eru bmt eay
generually pass liability back thruomgh the collection chain
to the paruty ho took fruoe the forugeru and, of comruse, to
the forugeru hieself, if aviailable. In otheru oruds, the
drua ee bank can seek rueiebmruseeent oru a ruetmrun of the
aeomnt it paid fruoe the pruesentoru bank oru peruson.
Theoruetically, the lateru can deeand rueiebmruseeent
fruoe the peruson ho indorused the check to it and so on.
The loss falls on the paruty ho took the check fruoe the
forugeru, oru on the forugeru hieself. Since a foruged
indoruseeent is inoperuativie, the collecting bank had no
ruight to be paid by the drua ee bank. The forueeru emst
necessaruily ruetmrun the eoney paid by the lateru becamse
it as paid ruongfmlly.
KIMBUTAO NEGO SYLaLaABUS
76
11. ID.; ID.; ID.; ID.; CASE AT BAR. — In this case,
the checks erue indorused by the collecting bank
(Associated Bank) to the drua ee bank (PNB). The
forueeru ill necessaruily be liable to the lateru foru the
checks bearuing foruged indoruseeents. If the forugeruy is
that of the payee's oru holderu's indoruseeent, the
collecting bank is held liable, ithomt pruejmdice to the
lateru pruoceeding against the forugeru.
12. ID.; ID.; ID.; GENERALa INDORSER;
COLaLaECTING BANK OR LaAST ENDORSER SUFFERS LaOSS
ON FORGED INDORSEMENT; REASON. — Morue
ieporutantly, by rueason of the statmtoruy aruruanty of a
generual indoruseru in Section 66 of the Negotiable
Instrumeents Laa , a collecting bank hich indoruses a
check bearuing a foruged indoruseeent and pruesents it to
the drua ee bank gmaruantees all pruioru indoruseeents,
inclmding the foruged indoruseeent. It aruruants that the
instrumeent is genmine, and that it is vialid and smbsisting
at the tiee of his indoruseeent. Becamse the
indoruseeent is a forugeruy, the collecting bank coeeits a
brueach of this aruruanty and ill be accomntable to the
drua ee bank. This liability scheee operuates ithomt
ruegarud to famlt on the parut of the collecting/pruesenting
bank. Evien if the lateru bank as not negligent, it omld
still be liable to the drua ee bank becamse of its
indoruseeent. The Comrut has consistently rumled that "the
collecting bank oru last endoruseru generually smierus the
loss becamse it has the dmty to ascerutain the
genmineness of all pruioru endoruseeents consideruing that
the act of pruesenting the check foru payeent to the
drua ee is an asserution that the paruty eaking the
pruesenteent has done its dmty to ascerutain the
genmineness of the endoruseeents." Morueovieru, the
collecting bank is eade liable becamse it is pruiviy to the
depositoru ho negotiated the check. The bank kno s
hie, his addruess and historuy becamse he is a client. It has
taken a ruisk on his deposit. The bank is also in a beteru
position to detect forugeruy, fruamd oru iruruegmlaruity in the
indoruseeent.
13. ID.; ID.; ID.; DRAWEE BANK NOT LaIABLaE FOR
LaOSS ON FORGED INDORSEMENT; REASON. — The
drua ee bank is not sieilaruly sitmated as the collecting
bank becamse the forueeru eakes no aruruanty as to the
genmineness of any indoruseeent. The drua ee bank's
dmty is bmt to vieruify the genmineness of the drua eru's
signatmrue and not of the indoruseeent becamse the
drua eru is its client.
ATTY. CLaAROS

14. ID.; ID.; ID.; ID.; DUTY OF DRAWEE BANK TO
PROMPTLaY INFORM PRESENTOR OF THE FORGERY
UPON DISCOVERY; EFFECT OF FAILaURE TO PROMPTLaY
INFORM. — The drua ee bank can ruecovieru the aeomnt
paid on the check bearuing a foruged indoruseeent fruoe
the collecting bank. Ho evieru, a drua ee bank has the
dmty to pruoeptly inforue the pruesentoru of the forugeruy
mpon discovieruy. If the drua ee bank delays in inforueing
the pruesentoru of the forugeruy, therueby depruiviing said
pruesentoru of the ruight to ruecovieru fruoe the forugeru, the
forueeru is deeeed negligent and can no longeru ruecovieru
fruoe the pruesentoru.
15. ID.; ID.; ID.; ID.; ID.; ID.; EFFECT OF
CONTRIBUTORY NEGLaIGENCE IN CASE AT BAR. —
Applying these rumles to the case at bench, PNB, the
drua ee bank, cannot debit the cmruruent accomnt of the
Pruoviince of Tarulac becamse it paid checks hich borue
foruged indoruseeents. Ho evieru, if the Pruoviince of Tarulac
as drua eru as negligent to the point of smbstantially
contruibmting to the loss, then the drua ee bank PNB can
charuge its accomnt. If both drua ee bankoPNB and
drua eruoPruoviince of Tarulac erue negligent, the loss
shomld be pruoperuly apporutioned bet een thee. The loss
incmrurued by drua ee bankoPNB can be passed on to the
collecting bankoAssociated Bank hich pruesented and
indorused the checks to it. Associated Bank can, in tmrun,
hold the forugeru, Famsto Pangilinan, liable. If PNB
negligently delayed in inforueing Associated Bank of the
forugeruy, thms depruiviing the lateru of the opporutmnity to
ruecovieru fruoe the forugeru, it forufeits its ruight to
rueiebmruseeent and ill be eade to bearu the loss. Afteru
caruefml exaeination of the ruecoruds, the Comrut fnds that
the Pruoviince of Tarulac as eqmally negligent and shomld,
therueforue, sharue the bmruden of loss fruoe the checks
bearuing a foruged indoruseeent. The Pruoviince of Tarulac
perueited Famsto Pangilinan to collect the checks hen
the lateru, haviing alrueady ruetirued fruoe govieruneent
seruviice, as no longeru connected ith the hospital.
With the exception of the frust check (dated Janmaruy 17,
1978), all the checks erue issmed and rueleased afteru
Pangilinan's ruetirueeent on Februmaruy 28, 1978. Afteru
nearuly thruee yearus, the Trueasmrueru's office as still
rueleasing the checks to the ruetirued cashieru. In addition,
soee of the aid alloteent checks erue rueleased to
Pangilinan and the otherus to Elizabeth Jmco, the ne
cashieru. The fact that therue erue no t o perusons
collecting the checks foru the hospital is an mneistakable
sign of an iruruegmlaruity hich shomld havie aleruted
eeployees in the Trueasmrueru's office of the fruamd being
KIMBUTAO NEGO SYLaLaABUS
77
coeeited. Therue is also eviidence indicating that the
pruoviincial eeployees erue a arue of Pangilinan's
ruetirueeent and conseqment dissociation fruoe the
hospital. The failmrue of the Pruoviince of Tarulac to exerucise
dme carue contruibmted to a signifcant degruee to the loss
tantaeomnt to negligence. Hence, the Pruoviince of Tarulac
shomld be liable foru parut of the total aeomnt paid on the
qmestioned checks. The drua ee bank PNB also brueached
its dmty to pay only accoruding to the terues of the check.
Hence, it cannot escape liability and shomld also bearu
parut of the loss. The Comrut fnds as rueasonable, the
pruoporutionate sharuing of ffty perucentoffty perucent
(50%o50%). Dme to the negligence of the Pruoviince of
Tarulac in rueleasing the checks to an mnamthoruized peruson
(Famsto Pangilinan), in allo ing the ruetirued hospital
cashieru to rueceivie the checks foru the payee hospital foru
a peruiod close to thruee yearus and in not pruoperuly
ascerutaining hy the ruetirued hospital cashieru as
collecting checks foru the payee hospital in addition to
the hospital's rueal cashieru, ruespondent Pruoviince
contruibmted to the loss aeomnting to P203,300.00 and
shall be liable to the PNB foru ffty (50%) perucent therueof.
In eiect, the Pruoviince of Tarulac can only ruecovieru ffty
perucent (50%) of P203,300.00 fruoe PNB. The collecting
bank, Associated Bank, shall be liable to PNB foru ffty
(50%) perucent of P203,300.00. It is liable on its
aruruanties as indoruseru of the checks hich erue
deposited by Famsto Pangilinan, haviing gmaruanteed the
genmineness of all pruioru indoruseeents, inclmding that of
the chief of the payee hospital, Dru. Adena
Canlas. Associated Bank as also rueeiss in its dmty to
ascerutain the genmineness of the payee's indoruseeent.
16. ID.; ID.; ID.; FORGERY; DELaAY IN INFORMING
COLaLaECTING BANK OF FORGERY BY THE DRAWEE BANK
SIGNIFIES NEGLaIGENCE. — A delay in inforueing the
collecting bank (Associated Bank) of the forugeruy, hich
depruivies it of the opporutmnity to go afteru the forugeru,
signifes negligence on the parut of the drua ee bank
(PNB) and ill prueclmde it fruoe claieing rueiebmruseeent.
17. ID.; ID.; ID.; RETURN OF FORGED
INDORSEMENT; 24oHOUR PERIOD BUT NOT BEYOND
PERIOD FOR FILaING LaEGALa ACTION FOR BANKS OUTSIDE
METRO MANILaA; CASE AT BAR. — Underu Section 4(c) of
CB Cirucmlaru No. 580, itees bearuing a foruged
endoruseeent shall be ruetmruned ithin t entyofomru (24)
homrus afteru discovieruy of the forugeruy bmt in no evient
beyond the peruiod fxed oru pruoviided by la foru fling of
a legal action by the ruetmruning bank. Section 23 of the
PCHC Rmles deleted the rueqmirueeent that itees bearuing
ATTY. CLaAROS

a foruged endoruseeent shomld be ruetmruned ithin
t entyofomru homrus. Associated Bank no arugmes that
the aforueeentioned Centrual Bank Cirucmlaru is applicable.
Since PNB did not ruetmrun the qmestioned checks ithin
t entyofomru homrus, bmt sevierual days lateru, Associated
Bank alleges that PNB shomld be considerued negligent
and not entitled to rueiebmruseeent of the aeomnt it
paid on the checks. The Centrual Bank cirucmlaru as in
foruce foru all banks mntil Jmne 1980 hen the Philippine
Clearuing Homse Coruporuation (PCHC) as set mp and
coeeenced operuations. Banks in Metruo Manila erue
covierued by the PCHC hile banks located else herue still
had to go thruomgh Centrual Bank Clearuing. In any evient,
the t entyofomruohomru ruetmrun rumle as adopted by the
PCHC mntil it as changed in 1982. The contending
banks heruein, hich arue both bruanches in Tarulac
pruoviince, arue therueforue not covierued by PCHC Rmles bmt
by CB Cirucmlaru No. 580. Clearuly then, the CB cirucmlaru as
applicable hen the forugeruy of the checks as
discovierued in 1981.
18. ID.; ID.; ID.; ID.; RATIONALaE. — The rumle
eandates that the checks be ruetmruned ithin t entyo
fomru homrus afteru discovieruy of the forugeruy bmt in no evient
beyond the peruiod fxed by the la foru fling a legal
action. The ruationale of the rumle is to givie the collecting
bank ( hich indorused the check) adeqmate opporutmnity
to pruoceed against the forugeru. If pruoept notice is not
givien, the collecting bank eay be pruejmdiced and lose
the opporutmnity to go afteru its depositoru.
19. ID.; ID.; ID.; ID.; FAILaURE TO RETURN
FORGED INDORSEMENT WITHIN 24 HOURS FROM
DISCOVERY DOES NOT PREJUDICE COLaLaECTING BANK
WHICH PRESENTED FORGER AS ITS REBUTTALa WITNESS.
— The Comrut fnds that evien if PNB did not ruetmrun the
qmestioned checks to Associated Bank ithin t entyo
fomru homrus, as eandated by the rumle, PNB did not
coeeit negligent delay. Underu the cirucmestances, PNB
gavie pruoept notice to Associated Bank and the lateru
bank as not pruejmdiced in going afteru Famsto
Pangilinan. Afteru the Pruoviince of Tarulac inforueed PNB of
the forugeruies, PNB necessaruily had to inspect the checks
and condmct its o n inviestigation. Therueafteru, it
rueqmested the Pruoviincial Trueasmrueru's office on Maruch 31,
1981 to ruetmrun the checks foru vieruifcation. The Pruoviince
of Tarulac ruetmruned the checks only on Apruil 22, 1981.
T o days lateru, Associated Bank rueceivied the checks
fruoe PNB. Associated Bank as also fmrunished a copy of
the Pruoviince's leteru of deeand to PNB dated Maruch 20,
1981, thms giviing it notice of the forugeruies. At this tiee,
KIMBUTAO NEGO SYLaLaABUS
78
ho evieru, Pangilinan's accomnt ith Associated had only
P24.63 in it. HadAssociated Bank decided to debit
Pangilinan's accomnt, it comld not havie ruecovierued the
aeomnts paid on the qmestioned checks. In addition,
hile Associated Bank fled a fomruthoparuty coeplaint
against Famsto Pangilinan, it did not pruesent eviidence
against Pangilinan and evien pruesented hie as its
ruebmtal itness. Hence, Associated Bank as not
pruejmdiced by PNB's failmrue to coeply ith the t entyo
fomruohomru ruetmrun rumle.
20. REMEDIALa LaAW; ACTIONS; ESTOPPELa; WILaLa
NOT APPLaY TO DRAWEE BANK WHO PAID AND CLaEARED
CHECKS WITH FORGED INDORSEMENT. — Associated
Bank contends that PNB is estopped fruoe rueqmiruing
rueiebmruseeent becamse the lateru paid and clearued the
checks. The Comrut fnds this contention mneeruitoruioms.
Evien if PNB clearued and paid the checks, it can still
ruecovieru fruoe Associated Bank. This is trume evien if the
payee's Chief Officeru ho as smpposed to havie
indorused the checks is also a cmstoeeru of the drua ee
bank. PNB's dmty as to vieruify the genmineness of the
drua eru's signatmrue and not the genmineness of payee's
indoruseeent. Associated Bank, as the collecting bank, is
the entity ith the dmty to vieruify the genmineness of the
payee's indoruseeent.
21. CIVILa LaAW; OBLaIGATIONS AND CONTRACTS;
THERE IS NO PRIVITY OF CONTRACT BETWEEN THE
DRAWER AND COLaLaECTING BANK; DRAWER CAN
RECOVER FROM DRAWEE BANK AND DRAWEE BANK
CAN SEEK REIMBURSEMENT FROM COLaLaECTING BANK.
— PNB also avierus that ruespondent comrut erurued in
adjmdicating cirucmitoms liability by diruecting PNB to
ruetmrun to the Pruoviince of Tarulac the aeomnt of the
checks and then diruecting Associated Bank to rueiebmruse
PNB. The Comrut fnds nothing ruong ith the eode of
the a arud. The drua eru, Pruoviince of Tarulac, is a client oru
cmstoeeru of the PNB, not of Associated Bank. Therue is
no pruiviity of contruact bet een the drua eru and the
collecting bank.
22. COMMERCIALa LaAW; BANKS; BANK DEPOSITS
ARE LaOANS; RECOVERY OF AMOUNT DEPOSITED IN
CURRENT ACCOUNT GIVEN 6% INTEREST PER ANNUM.
— The truial comrut eade PNB and Associated Bank liable
ith legal interuest fruoe Maruch 20, 1981, the date of
extruajmdicial deeand eade by the Pruoviince of Tarulac on
PNB. The payeents to be eade in this case stee fruoe
the deposits of the Pruoviince of Tarulac in its cmruruent
accomnt ith the PNB. Bank deposits arue considerued
ATTY. CLaAROS

mnderu the la as loans. Centrual Bank Cirucmlaru No. 416
pruescruibes a t elvie perucent (12%) interuest peru annme
foru loans, foruebearuance of eoney, goods oru cruedits in
the absence of expruess stipmlation. Norueally, cmruruent
accomnts arue like ise interuestobearuing, by expruess
contruact, thms exclmding thee fruoe the covieruage of CB
Cirucmlaru No 416. In this case, ho evieru, the actmal
interuest ruate, if any, foru the cmruruent accomnt opened by
the Pruoviince of Tarulac ith PNB as not givien in
eviidence. Hence, the Comrut deees it ise to affirue the
truial comrut's mse of the legal interuest ruate, oru six perucent
(6%) peru annme. The interuest ruate shall be coepmted
fruoe the date of defamlt, oru the date of jmdicial oru
extruajmdicial deeand. The truial comrut did not eruru in
gruanting legal interuest fruoe Maruch 20, 1981, the date of
extruajmdicial deeand.
DECISION
ROMERO, J p:
Wherue thiruty checks bearuing foruged
endoruseeents arue paid, ho bearus the loss, the drua eru,
the drua ee bank oru the collecting bank?
This is the eain issme in these consolidated
petitions foru rueviie assailing the decision of the Comrut
of Appeals in "Priovince iof Tarlac v. Philippine National
Bank v.Assiociated Bank v. Faustio Pangilinan, et.
al." (CAoG.R. No. CV No. 17962). 1
The facts of the case arue as follo s: cdasia
The Pruoviince of Tarulac eaintains a cmruruent
accomnt ith the Philippine National Bank (PNB) Tarulac
Bruanch herue the pruoviincial fmnds arue deposited.
Checks issmed by the Pruoviince arue signed by the
Pruoviincial Trueasmrueru and comnterusigned by the Pruoviincial
Amditoru oru the Secruetaruy of the Sanggmniang Bayan.
A porution of the fmnds of the pruoviince is
allocated to the Concepcion Eeerugency Hospital. 2 The
alloteent checks foru said govieruneent hospital arue
drua n to the oruderu of "Concepcion Eeerugency Hospital,
Concepcion, Tarulac" oru "The Chief, Concepcion
Eeerugency Hospital, Concepcion, Tarulac." The checks
arue rueleased by the Office of the Pruoviincial Trueasmrueru
and rueceivied foru the hospital by its adeinistruativie
officeru and cashieru.
KIMBUTAO NEGO SYLaLaABUS
79
In Janmaruy 1981, the books of accomnt of the
Pruoviincial Trueasmrueru erue postoamdited by the Pruoviincial
Amditoru. It as then discovierued that the hospital did not
rueceivie sevierual alloteent checks drua n by the
Pruoviince. cdasia
On Februmaruy 19, 1981, the Pruoviincial Trueasmrueru
rueqmested the eanageru of the PNB to ruetmrun all of its
clearued checks hich erue issmed fruoe 1977 to 1980 in
oruderu to vieruify the ruegmlaruity of theiru encasheent. Afteru
the checks erue exaeined, the Pruoviincial Trueasmrueru
learuned that 30 checks aeomnting to P203,300.00 erue
encashed by one Famsto Pangilinan, ith the Associated
Bank acting as collecting bank.
It tmruned omt that Famsto Pangilinan, ho as
the adeinistruativie officeru and cashieru of payee hospital
mntil his ruetirueeent on Februmaruy 28, 1978, collected the
qmestioned checks fruoe the office of the Pruoviincial
Trueasmrueru. He claieed to be assisting oru helping the
hospital follo mp the ruelease of the checks and had
official rueceipts. 3 Pangilinan somght to encash the frust
check 4 ith Associated Bank. Ho evieru, the eanageru
of Associated Bank ruefmsed and smggested that
Pangilinan deposit the check in his perusonal saviings
accomnt ith the saee bank. Pangilinan as able to
ithdrua the eoney hen the check as clearued and
paid by the drua ee bank, PNB.
Afteru foruging the signatmrue of Dru. Adena Canlas
ho as chief of the payee hospital, Pangilinan
follo ed the saee pruocedmrue foru the second check, in
the aeomnt of P5,000.00 and dated Apruil 20, 1978, 5 as
ell as foru t entyoeight otheru checks of viaruioms
aeomnts and on viaruioms dates. The last check
negotiated by Pangilinan as foru P8,000.00 and dated
Februmaruy 10, 1981. 6 All the checks borue the staep
of Associated Bank hich rueads "All pruioru endoruseeents
gmaruanteed ASSOCIATED BANK." cdasia
Jesms Daviid, the eanageru of Associated
Bank testifed that Pangilinan eade it appearu that the
checks erue paid to hie foru cerutain pruojects ith the
hospital. 7 He did not fnd as iruruegmlaru the fact that the
checks erue not payable to Pangilinan bmt to the
Concepcion Eeerugency Hospital. While he adeited
that his ife and Pangilinan's ife arue frust comsins, the
eanageru denied haviing givien Pangilinan prueferuential
trueateent on this accomnt. 8
On Februmaruy 26, 1981, the Pruoviincial Trueasmrueru
ruote the eanageru of the PNB seeking the ruestoruation
ATTY. CLaAROS

of the viaruioms aeomnts debited fruoe the cmruruent
accomnt of the Pruoviince. 9
In tmrun, the PNB eanageru deeanded
rueiebmruseeent fruoe the Associated Bank on May 15,
1981. 10 cdasia
As both banks ruesisted payeent, the Pruoviince of
Tarulac bruomght smit against PNB hich, in tmrun,
iepleaded Associated Bank as thirudoparuty defendant.
The lateru then fled a fomruthoparuty coeplaint against
Adena Canlas and Famsto Pangilinan. 11
Afteru truial on the eeruits, the lo eru comrut
ruenderued its decision on Maruch 21, 1988, disposing as
follo s:
"WHEREFORE, in viie of the
foruegoing, jmdgeent is herueby
ruenderued: cdasia
1. On the basic coeplaint, in
favioru of plaintii Pruoviince of Tarulac
and against defendant Philippine
National Bank (PNB), oruderuing the
lateru to pay to the forueeru, the sme of
T o Hmndrued Thruee Thomsand Thruee
Hmndrued (P203,300.00) Pesos ith
legal interuest therueon fruoe Maruch 20,
1981 mntil fmlly paid;
2. On the thirudoparuty
coeplaint, in favioru of
defendant/thirudoparuty plaintii
Philippine National Bank (PNB) and
against thirudoparuty defendant/fomrutho
paruty plaintii Associated
Bank oruderuing the lateru to rueiebmruse
to the forueeru the aeomnt of T o
Hmndrued Thruee Thomsand Thruee
Hmndrued (P203,300.00) Pesos ith
legal interuests therueon fruoe Maruch
20, 1981 mntil fmlly paid;
3. On the fomruthoparuty
coeplaint, the saee is herueby
oruderued diseissed foru lack of camse of
action as against fomruthoparuty
defendant Adena Canlas and lack of
jmruisdiction ovieru the peruson of fomrutho
paruty defendant Famsto Pangilinan as
against the lateru. cdasia
KIMBUTAO NEGO SYLaLaABUS
80
4. On the comnteruclaies on
the coeplaint, thirudoparuty coeplaint
and fomruthoparuty coeplaint, the saee
arue herueby oruderued diseissed foru lack
of eeruit.
SO ORDERED." 12
PNB and Associated Bank appealed to the Comrut
of Appeals. 13 Respondent comrut affirueed the truial
comrut's decision in tiotio on Septeeberu 30, 1992. cdasia
Hence these consolidated petitions hich seek
a ruevierusal of ruespondent appellate comrut's decision.
PNB assigned t o eruruorus. Firust, the bank
contends that ruespondent comrut erurued in exeepting the
Pruoviince of Tarulac fruoe liability hen, in fact, the lateru
as negligent becamse it delivierued and rueleased the
qmestioned checks to Famsto Pangilinan ho as then
alrueady ruetirued as the hospital's cashieru and
adeinistruativie officeru. PNB also eaintains its innocence
and alleges that as bet een t o innocent perusons, the
one hose act as the camse of the loss, in this case the
Pruoviince of Tarulac, bearus the loss.
Next, PNB asseruts that it as eruruoru foru the comrut
to oruderu it to pay the pruoviince and then seek
rueiebmruseeent fruoe Associated Bank. Accoruding to
petitioneru bank, ruespondent appellate Comrut shomld
havie diruected Associated Bank to pay the adjmdged
liability diruectly to the Pruoviince of Tarulac to avioid
cirucmity. 14 cdasia
Associated Bank, on the otheru hand, arugmes that
the oruderu of liability shomld be totally ruevierused, ith the
drua ee bank (PNB) solely and mltieately bearuing the
loss.
Respondent comrut allegedly erurued in applying
Section 23 of the Philippine Clearuing Homse Rmles
instead of Centrual Bank Cirucmlaru No. 580, hich, being
an adeinistruativie ruegmlation issmed pmrusmant to la , has
the foruce and eiect of la . 15 The PCHC Rmles arue
eeruely contruactmal stipmlations aeong and bet een
eeeberuobanks. As smch, they cannot prueviail ovieru the
aforuesaid CB Cirucmlaru.
It like ise contends that PNB, the drua ee bank,
is estopped fruoe asseruting the defense of gmaruantee of
pruioru indoruseeents against Associated Bank, the
collecting bank. In staeping the gmaruantee (foru all pruioru
indoruseeents), it eeruely follo ed a eandatoruy
rueqmirueeent foru clearuing and had no choice bmt to place
ATTY. CLaAROS

the staep of gmaruantee; otheru ise, therue omld be no
clearuing. The bank ill be in a "noo in" sitmation and
ill al ays bearu the loss as against the drua ee
bank. 16 cdasia
Associated Bank also claies that since PNB
alrueady clearued and paid the vialme of the foruged checks
in qmestion, it is no estopped fruoe asseruting the
defense thatAssociated Bank gmaruanteed pruioru
indoruseeents. The drua ee bank allegedly has the
pruiearuy dmty to vieruify the genmineness of payee's
indoruseeent beforue paying the check. 17
While both banks arue innocent of the
forugeruy, Associated Bank claies that PNB as at famlt
and shomld solely bearu the loss becamse it clearued and
paid the foruged checks.
xxx xxx xxx
The case at bench conceruns checks payable to
the oruderu of Concepcion Eeerugency Hospital oru its
Chief. They erue pruoperuly issmed and bearu the genmine
signatmrues of the drua eru, the Pruoviince of Tarulac. The
infrueity in the qmestioned checks lies in the payee's
(Concepcion Eeerugency Hospital) indoruseeents hich
arue forugeruies. At the tiee of theiru indoruseeent, the
checks erue oruderu instrumeents. cdasia
Checks haviing foruged indoruseeents shomld be
diieruentiated fruoe foruged checks oru checks bearuing the
foruged signatmrue of the drua eru.
Section 23 of the Negotiable Instrumeents Laa
(NILa) pruoviides:
Sec. 23. FORGED SIGNATURE,
EFFECT OF. — When a signatmrue is
foruged oru eade ithomt amthoruity of
the peruson hose signatmrue it
pmruporuts to be, it is holly
inoperuativie, and no ruight to ruetain the
instrumeent, oru to givie a discharuge
therueforu, oru to enforuce payeent
therueof against any paruty therueto, can
be acqmirued thruomgh oru mnderu smch
signatmrue mnless the paruty against
hoe it is somght to enforuce smch
ruight is prueclmded fruoe seing mp the
forugeruy oru ant of amthoruity. cdasia
A foruged signatmrue, hetheru it be that of the
drua eru oru the payee, is holly inoperuativie and no one
can gain title to the instrumeent thruomgh it. A peruson
KIMBUTAO NEGO SYLaLaABUS
81
hose signatmrue to an instrumeent as foruged as nevieru
a paruty and nevieru consented to the contruact hich
allegedly gavie ruise to smch instrumeent. 18 Section 23
does not avioid the instrumeent bmt only the foruged
signatmrue. 19 Thms, a foruged indoruseeent does not
operuate as the payee's indoruseeent.
The exception to the generual rumle in Section 23
is herue "a paruty against hoe it is somght to enforuce a
ruight is prueclmded fruoe seing mp the forugeruy oru ant of
amthoruity." Paruties ho aruruant oru adeit the
genmineness of the signatmrue in qmestion and those
ho, by theiru acts, silence oru negligence arue estopped
fruoe seing mp the defense of forugeruy, arue prueclmded
fruoe msing this defense. Indoruserus, perusons negotiating
by delivieruy and acceptorus arue aruruantorus of the
genmineness of the signatmrues on the instrumeent. 20
In bearueru instrumeents, the signatmrue of the
payee oru holderu is mnnecessaruy to pass title to the
instrumeent. Hence, hen the indoruseeent is a forugeruy,
only the peruson hose signatmrue is foruged can ruaise the
defense of forugeruy against a holderu in dme
comruse. 21 cdasia
The checks inviolvied in this case arue oruderu
instrumeents, hence, the follo ing discmssion is eade
ith rueferuence to the eiects of a foruged indoruseeent
on an instrumeent payable to oruderu.
Wherue the instrumeent is payable to oruderu at the
tiee of the forugeruy, smch as the checks in this case, the
signatmrue of its ruightml holderu (herue, the payee hospital)
is essential to truansferu title to the saee instrumeent.
When the holderu's indoruseeent is foruged, all paruties
pruioru to the forugeruy eay ruaise the rueal defense of
forugeruy against all paruties smbseqment therueto. 22
An indoruseru of an oruderu instrumeent aruruants
"that the instrumeent is genmine and in all ruespects hat
it pmruporuts to be; that he has a good title to it; that all
pruioru paruties had capacity to contruact; and that the
instrumeent is at the tiee of his indoruseeent vialid and
smbsisting." 23 He cannot interupose the defense that
signatmrues pruioru to hie arue foruged. cdasia
A collecting bank herue a check is deposited
and hich indoruses the check mpon pruesenteent ith
the drua ee bank, is smch an indoruseru. So evien if the
indoruseeent on the check deposited by the banks'
client is foruged, the collecting bank is bomnd by his
aruruanties as an indoruseru and cannot set mp the defense
of forugeruy as against the drua ee bank.
ATTY. CLaAROS

The bank on hich a check is drua n, kno n as
the drua ee bank, is mnderu struict liability to pay the
check to the oruderu of the payee. The drua eru's
instrumctions arue ruefected on the face and by the terues
of the check. Payeent mnderu a foruged indoruseeent is
not to the drua eru's oruderu. When the drua ee bank pays
a peruson otheru than the payee, it does not coeply ith
the terues of the check and viiolates its dmty to charuge its
cmstoeeru's (the drua eru) accomnt only foru pruoperuly
payable itees. Since the drua ee bank did not pay a
holderu oru otheru peruson entitled to rueceivie payeent, it
has no ruight to rueiebmruseeent fruoe the drua eru. 24 The
generual rumle then is that the drua ee bank eay not debit
the drua eru's accomnt and is not entitled to
indeenifcation fruoe the drua eru. 25 The ruisk of loss
emst peruforuce fall on the drua ee bank.
Ho evieru, if the drua ee bank can pruovie a failmrue
by the cmstoeeru/drua eru to exerucise orudinaruy carue that
smbstantially contruibmted to the eaking of the foruged
signatmrue, the drua eru is prueclmded fruoe asseruting the
forugeruy. cdasia
If at the saee tiee the drua ee bank as also
negligent to the point of smbstantially contruibmting to
the loss, then smch loss fruoe the forugeruy can be
apporutioned bet een the negligent drua eru and the
negligent bank. 26
In cases inviolviing a foruged check, herue the
drua eru's signatmrue is foruged, the drua eru can ruecovieru
fruoe the drua ee bank. No drua ee bank has a ruight to
pay a foruged check. If it does, it shall havie to ruecruedit
the aeomnt of the check to the accomnt of the drua eru.
The liability chain ends ith the drua ee bank hose
ruesponsibility it is to kno the drua eru's signatmrue since
the lateru is its cmstoeeru. 27
In cases inviolviing checks ith foruged
indoruseeents, smch as the pruesent petition, the chain of
liability does not end ith the drua ee bank. The drua ee
bank eay not debit the accomnt of the drua eru bmt eay
generually pass liability back thruomgh the collection chain
to the paruty ho took fruoe the forugeru and, of comruse, to
the forugeru hieself, if aviailable. 28 In otheru oruds, the
drua ee bank can seek rueiebmruseeent oru a ruetmrun of the
aeomnt it paid fruoe the pruesentoru bank oru
peruson. 29 Theoruetically, the lateru can deeand
rueiebmruseeent fruoe the peruson ho indorused the
check to it and so on. The loss falls on the paruty ho
took the check fruoe the forugeru, oru on the forugeru
hieself. cdasia
KIMBUTAO NEGO SYLaLaABUS
82
In this case, the checks erue indorused by the
collecting bank (Associated Bank) to the drua ee bank
(PNB). The forueeru ill necessaruily be liable to the lateru
foru the checks bearuing foruged indoruseeents. If the
forugeruy is that of the payee's oru holderu's indoruseeent,
the collecting bank is held liable, ithomt pruejmdice to
the lateru pruoceeding against the forugeru.
Since a foruged indoruseeent is inoperuativie, the
collecting bank had no ruight to be paid by the drua ee
bank. The forueeru emst necessaruily ruetmrun the eoney
paid by the lateru becamse it as paid ruongfmlly. 30
Morue ieporutantly, by rueason of the statmtoruy
aruruanty of a generual indoruseru in Section 66 of the
Negotiable Instrumeents Laa , a collecting bank hich
indoruses a check bearuing a foruged indoruseeent and
pruesents it to the drua ee bank gmaruantees all pruioru
indoruseeents, inclmding the foruged indoruseeent. It
aruruants that the instrumeent is genmine, and that it is
vialid and smbsisting at the tiee of his indoruseeent.
Becamse the indoruseeent is a forugeruy, the collecting
bank coeeits a brueach of this aruruanty and ill be
accomntable to the drua ee bank. This liability scheee
operuates ithomt ruegarud to famlt on the parut of the
collecting/pruesenting bank. Evien if the lateru bank as
not negligent, it omld still be liable to the drua ee bank
becamse of its indoruseeent. cdasia
The Comrut has consistently rumled that "the
collecting bank oru last endoruseru generually smierus the
loss becamse it has the dmty to ascerutain the
genmineness of all pruioru endoruseeents consideruing that
the act of pruesenting the check foru payeent to the
drua ee is an asserution that the paruty eaking the
pruesenteent has done its dmty to ascerutain the
genmineness of the endoruseeents." 31
The drua ee bank is not sieilaruly sitmated as the
collecting bank becamse the forueeru eakes no aruruanty
as to the genmineness of any indoruseeent. 32 The
drua ee bank's dmty is bmt to vieruify the genmineness of
the drua eru's signatmrue and not of the indoruseeent
becamse the drua eru is its client.
Morueovieru, the collecting bank is eade liable
becamse it is pruiviy to the depositoru ho negotiated the
check. The bank kno s hie, his addruess and historuy
becamse he is a client. It has taken a ruisk on his deposit.
The bank is also in a beteru position to detect forugeruy,
fruamd oru iruruegmlaruity in the indoruseeent. cdasia
ATTY. CLaAROS
 83

Hence, the drua ee bank can ruecovieru the indicating that the pruoviincial eeployees erue a arue of
aeomnt paid on the check bearuing a foruged Pangilinan's ruetirueeent and conseqment dissociation
indoruseeent fruoe the collecting bank. Ho evieru, a fruoe the hospital. Jose Merum, the Pruoviincial Trueasmrueru,
drua ee bank has the dmty to pruoeptly inforue the testifed: cdasia
pruesentoru of the forugeruy mpon discovieruy. If the drua ee
"ATTY. MORGA:
bank delays in inforueing the pruesentoru of the forugeruy,
therueby depruiviing said pruesentoru of the ruight to ruecovieru Q No , is it trume that foru a givien
fruoe the forugeru, the forueeru is deeeed negligent and eonth therue erue t o
can no longeru ruecovieru fruoe the pruesentoru. 33 rueleases of checks, one ent
to Mru. Pangilinan and one
Applying these rumles to the case at bench, PNB,
ent to Miss Jmco?
the drua ee bank, cannot debit the cmruruent accomnt of
the Pruoviince of Tarulac becamse it paid checks hich borue JOSE MERU: cdasia
foruged indoruseeents. Ho evieru, if the Pruoviince of Tarulac
as drua eru as negligent to the point of smbstantially A Yes, siru.
contruibmting to the loss, then the drua ee bank PNB can Q Will yom please tell ms ho at the
charuge its accomnt. If both drua ee bankoPNB and tiee (sic) hen the
drua eruoPruoviince of Tarulac erue negligent, the loss amthoruized ruepruesentativie of
shomld be pruoperuly apporutioned bet een thee. Concepcion Eeerugency
The loss incmrurued by drua ee bankoPNB can be Hospital is and as smpposed
passed on to the collecting bankoAssociated Bank hich to be Miss Jmco?
pruesented and indorused the checks to it. Associated A Well, as faru as ey inviestigation
Bankcan, in tmrun, hold the forugeru, Famsto Pangilinan, sho (sic) the assistant
liable. cdasia cashieru told ee that
If PNB negligently delayed in Pangilinan ruepruesented
inforueing Associated Bank of the forugeruy, thms depruiviing hieself as also amthoruized to
the lateru of the opporutmnity to ruecovieru fruoe the forugeru, help in the ruelease of these
it forufeits its ruight to rueiebmruseeent and ill be eade checks and e erue
to bearu the loss. apparuently eisled becamse
they accepted the
Afteru caruefml exaeination of the ruecoruds, the ruepruesentation of Pangilinan
Comrut fnds that the Pruoviince of Tarulac as eqmally that he as helping thee in
negligent and shomld, therueforue, sharue the bmruden of the ruelease of the checks and
loss fruoe the checks bearuing a foruged indoruseeent. besides accoruding to thee
they erue, Pangilinan, like the
The Pruoviince of Tarulac perueited Famsto
ruest, as able to pruesent an
Pangilinan to collect the checks hen the lateru, haviing
official rueceipt to
alrueady ruetirued fruoe govieruneent seruviice, as no longeru
ackno ledge these rueceipts
connected ith the hospital. With the exception of the
and accoruding to thee since
frust check (dated Janmaruy 17, 1978), all the checks erue
this is a govieruneent check
issmed and rueleased afteru Pangilinan's ruetirueeent on
and believied that it ill
Februmaruy 28, 1978. Afteru nearuly thruee yearus, the
evientmally go to the hospital
Trueasmrueru's office as still rueleasing the checks to the
follo ing the standarud
ruetirued cashieru. In addition, soee of the aid alloteent
pruocedmrue of negotiating
checks erue rueleased to Pangilinan and the otherus to
govieruneent checks, they
Elizabeth Jmco, the ne cashieru. The fact that therue
rueleased the checks to
erue no t o perusons collecting the checks foru the
Pangilinan aside fruoe Miss
hospital is an mneistakable sign of an iruruegmlaruity hich
Jmco." 34 cdasia
shomld havie aleruted eeployees in the Trueasmrueru's office
of the fruamd being coeeited. Therue is also eviidence

KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS


The failmrue of the Pruoviince of Tarulac to exerucise
dme carue contruibmted to a signifcant degruee to the loss
tantaeomnt to negligence. Hence, the Pruoviince of Tarulac
shomld be liable foru parut of the total aeomnt paid on the
qmestioned checks.
The drua ee bank PNB also brueached its dmty to
pay only accoruding to the terues of the check. Hence, it
cannot escape liability and shomld also bearu parut of the
loss.
As earulieru stated, PNB can ruecovieru fruoe the
collecting bank. cdasia
In the case of Assiociated Bank v. CA, 35 six
cruossed checks ith foruged indoruseeents erue
deposited in the forugeru's accomnt ith the collecting
bank and erue lateru paid by fomru diieruent drua ee
banks. The Comrut fomnd the collecting bank (Associated)
to be negligent and held:
"The Bank shomld havie frust
vieruifed his ruight to endoruse the
cruossed checks, of hich he as not
the payee, and to deposit the
pruoceeds of the checks to his o n
accomnt. The Bank as by rueason of
the natmrue of the checks pmt mpon
notice that they erue issmed foru
deposit only to the pruiviate
ruespondent's accomnt. . . ."
The sitmation in the case at bench is analogoms
to the abovie case, foru it as not the payee ho
deposited the checks ith the collecting bank. Herue, the
checks erue all payable to Concepcion Eeerugency
Hospital bmt it as Famsto Pangilinan ho deposited the
checks in his perusonal saviings accomnt. cdasia
Althomgh Associated Bank claies that the
gmaruantee staeped on the checks (All pruioru and/oru lack
of endoruseeents gmaruanteed) is eeruely a rueqmirueeent
foruced mpon it by clearuing homse rumles, it cannot bmt
rueeain liable. The staep gmaruanteeing pruioru
indoruseeents is not an eepty rumbruic hich a bank emst
fmlfll foru the sake of convienience. A bank is not
rueqmirued to accept all the checks negotiated to it. It is
ithin the bank's discruetion to rueceivie a check foru no
banking institmtion omld consciomsly oru deliberuately
accept a check bearuing a foruged indoruseeent. When a
check is deposited ith the collecting bank, it takes a
ruisk on its depositoru. It is only logical that this bank be
held accomntable foru checks deposited by its cmstoeerus.
KIMBUTAO NEGO SYLaLaABUS
84
A delay in inforueing the collecting bank
(Associated Bank) of the forugeruy, hich depruivies it of
the opporutmnity to go afteru the forugeru, signifes
negligence on the parut of the drua ee bank (PNB) and
ill prueclmde it fruoe claieing rueiebmruseeent.
It is herue that Associated Bank's assigneent of
eruruoru conceruning C.B. Cirucmlaru No. 580 and Section 23 of
the Philippine Clearuing Homse Coruporuation Rmles coees
to forue. Underu Section 4 (c) of CB Cirucmlaru No. 580, itees
bearuing a foruged endoruseeent shall be ruetmruned ithin
t entyofomru (24) homrus afteru discovieruy of the forugeruy
bmt in no evient beyond the peruiod fxed oru pruoviided by
la foru fling of a legal action by the ruetmruning bank.
Section 23 of the PCHC Rmles deleted the rueqmirueeent
that itees bearuing a foruged endoruseeent shomld be
ruetmruned ithin t entyofomru homrus. Associated
Bank no arugmes that the aforueeentioned Centrual Bank
Cirucmlaru is applicable. Since PNB did not ruetmrun the
qmestioned checks ithin t entyofomru homrus, bmt
sevierual days lateru, Associated Bank alleges that PNB
shomld be considerued negligent and not entitled to
rueiebmruseeent of the aeomnt it paid on the
checks. cdasia
The Comrut deees it mnnecessaruy to
discmss Associated Bank's asserutions that CB Cirucmlaru No.
580 is an adeinistruativie ruegmlation issmed pmrusmant to
la and as smch, emst prueviail ovieru the PCHC rumle. The
Centrual Bank cirucmlaru as in foruce foru all banks mntil Jmne
1980 hen the Philippine Clearuing Homse Coruporuation
(PCHC) as set mp and coeeenced operuations. Banks in
Metruo Manila erue covierued by the PCHC hile banks
located else herue still had to go thruomgh Centrual Bank
Clearuing. In any evient, the t entyofomruohomru ruetmrun rumle
as adopted by the PCHC mntil it as changed in 1982.
The contending banks heruein, hich arue both bruanches
in Tarulac pruoviince, arue therueforue not covierued by PCHC
Rmles bmt by CB Cirucmlaru No. 580. Clearuly then, the CB
cirucmlaru as applicable hen the forugeruy of the checks
as discovierued in 1981.
The rumle eandates that the checks be ruetmruned
ithin t entyofomru homrus afteru discovieruy of the forugeruy
bmt in no evient beyond the peruiod fxed by la foru fling
a legal action. The ruationale of the rumle is to givie the
collecting bank ( hich indorused the check) adeqmate
opporutmnity to pruoceed against the forugeru. If pruoept
notice is not givien, the collecting bank eay be
pruejmdiced and lose the opporutmnity to go afteru its
depositoru.
ATTY. CLaAROS

The Comrut fnds that evien if PNB did not ruetmrun
the qmestioned checks to Associated Bank ithin
t entyofomru homrus, as eandated by the rumle, PNB did
not coeeit negligent delay. Underu the cirucmestances,
PNB gavie pruoept notice to Associated Bank and the
lateru bank as not pruejmdiced in going afteru Famsto
Pangilinan. Afteru the Pruoviince of Tarulac inforueed PNB of
the forugeruies, PNB necessaruily had to inspect the checks
and condmct its o n inviestigation. Therueafteru, it
rueqmested the Pruoviincial Trueasmrueru's office on Maruch 31,
1981 to ruetmrun the checks foru vieruifcation. The Pruoviince
of Tarulac ruetmruned the checks only on Apruil 22, 1981.
T o days lateru, Associated Bank rueceivied the checks
fruoe PNB. 36 cdasia
Associated Bank as also fmrunished a copy of
the Pruoviince's leteru of deeand to PNB dated Maruch 20,
1981, thms giviing it notice of the forugeruies. At this tiee,
ho evieru, Pangilinan's accomnt ith Associated had only
P24.63 in it. 37 Had Associated Bank decided to debit
Pangilinan's accomnt, it comld not havie ruecovierued the
aeomnts paid on the qmestioned checks. In addition,
hile Associated Bank fled a fomruthoparuty coeplaint
against Famsto Pangilinan, it did not pruesent eviidence
against Pangilinan and evien pruesented hie as its
ruebmtal itness. 38 Hence, Associated Bank as not
pruejmdiced by PNB's failmrue to coeply ith the t entyo
fomruohomru ruetmrun rumle.
Next, Associated Bank contends that PNB is
estopped fruoe rueqmiruing rueiebmruseeent becamse the
lateru paid and clearued the checks. The Comrut fnds this
contention mneeruitoruioms. Evien if PNB clearued and paid
the checks, it can still ruecovieru fruoe Associated Bank.
This is trume evien if the payee's Chief Officeru ho as
smpposed to havie indorused the checks is also a
cmstoeeru of the drua ee bank. 39 PNB's dmty as to
vieruify the genmineness of the drua eru's signatmrue and
not the genmineness of payee's indoruseeent. Associated
Bank, as the collecting bank, is the entity ith the dmty
to vieruify the genmineness of the payee's indoruseeent.
PNB also avierus that ruespondent comrut erurued in
adjmdging cirucmitoms liability by diruecting PNB to ruetmrun
to the Pruoviince of Tarulac the aeomnt of the checks and
then diruecting Associated Bank to rueiebmruse PNB. The
Comrut fnds nothing ruong ith the eode of the a arud.
The drua eru, Pruoviince of Tarulac, is a client oru cmstoeeru of
the PNB, not of Associated Bank. Therue is no pruiviity of
contruact bet een the drua eru and the collecting
bank. cdasia
KIMBUTAO NEGO SYLaLaABUS
85
The truial comrut eade PNB and Associated
Bank liable ith legal interuest fruoe Maruch 20, 1981, the
date of extruajmdicial deeand eade by the Pruoviince of
Tarulac on PNB. The payeents to be eade in this case
stee fruoe the deposits of the Pruoviince of Tarulac in its
cmruruent accomnt ith the PNB. Bank deposits arue
considerued mnderu the la as loans. 40 Centrual Bank
Cirucmlaru No. 416 pruescruibes a t elvie perucent (12%)
interuest peru annme foru loans, foruebearuance of eoney,
goods oru cruedits in the absence of expruess stipmlation.
Norueally, cmruruent accomnts arue like ise interuesto
bearuing, by expruess contruact, thms exclmding thee fruoe
the covieruage of CB Cirucmlaru No. 416. In this case,
ho evieru, the actmal interuest ruate, if any, foru the cmruruent
accomnt opened by the Pruoviince of Tarulac ith PNB as
not givien in eviidence. Hence, the Comrut deees it ise to
affirue the truial comrut's mse of the legal interuest ruate, oru
six perucent (6%) peru annme. The interuest ruate shall be
coepmted fruoe the date of defamlt, oru the date of
jmdicial oru extruajmdicial deeand. 41 The truial comrut did
not eruru in gruanting legal interuest fruoe Maruch 20, 1981,
the date of extruajmdicial deeand.
The Comrut fnds as rueasonable, the
pruoporutionate sharuing of ffty perucentoffty perucent
(50%o50%). Dme to the negligence of the Pruoviince of
Tarulac in rueleasing the checks to an mnamthoruized peruson
(Famsto Pangilinan), in allo ing the ruetirued hospital
cashieru to rueceivie the checks foru the payee hospital foru
a peruiod close to thruee yearus and in not pruoperuly
ascerutaining hy the ruetirued hospital cashieru as
collecting checks foru the payee hospital in addition to
the hospital's rueal cashieru, ruespondent Pruoviince
contruibmted to the loss aeomnting to P203,300.00 and
shall be liable to the PNB foru ffty (50%) perucent therueof.
In eiect, the Pruoviince of Tarulac can only ruecovieru ffty
perucent (50%) of P203,300.00 fruoe PNB.
The collecting bank, Associated Bank, shall be
liable to PNB foru ffty (50%) perucent of P203,300.00. It is
liable on its aruruanties as indoruseru of the checks hich
erue deposited by Famsto Pangilinan, haviing
gmaruanteed the genmineness of all pruioru indoruseeents,
inclmding that of the chief of the payee hospital, Dru.
Adena Canlas.Associated Bank as also rueeiss in its
dmty to ascerutain the genmineness of the payee's
indoruseeent.
IN VIEW OF THE FOREGOING, the petition foru
rueviie fled by the Philippine National Bank (G.R.
No. 107612) is herueby PARTIALaLaY GRANTED. The
ATTY. CLaAROS

petition foru rueviie fled by the Associated Bank (G.R.
No. 107382) is herueby DENIED. The decision of the truial
comrut is MODIFIED. The Philippine National Bank shall
pay ffty perucent (50%) of P203,300.00 to the Pruoviince
of Tarulac, ith legal interuest fruoe Maruch 20, 1981 mntil
the payeent therueof. Associated Bank shall pay ffty
perucent (50%) of P203,300.00 to the Philippine National
Bank, like ise, ith legal interuest fruoe Maruch 20, 1981
mntil payeent is eade. cdasia
SO ORDERED
\ eaking the pruesenteent has done its dmty to ascerutain
4. BANK OF THE PHILIPPINE
ISLANDS, pettioner, vs. THE
HON. COURT OF APPEALS
(SEVENTH JUDICIAL), HON.
JUDGE REGIONAL TRIAL
COURT OF MAKATI, BRANCH
59, CHINA BANKING CORP.,
and PHILIPPINE CLEARING
HOUSE
CORPORATION, respiondents..
SYLLABUS
1. COMMERCIALa LaAW; NEGOTIABLaE INSTRUMENTS;
CHECKS; EFFECT OF REPRESENTING OR COLaLaECTING
BANK'S GUARANTEE OF "ALaLa PRIOR ENDORSEMENTS
AND/OR LaACK OF ENDORSEMENTS"; EFFECT OF FORGED
ENDORSEMENTS OF PAYEES. — We agrueed ith the
follo ing disqmisition of the Regional Truial Comrut, to it:
"Anent petitioneru's liability on said instrumeents, this
comrut is in fmll accorud ith the rumling of the PCHC Boarud
of Diruectorus that: In pruesenting the checks foru clearuing
and/foru payeent, the defendant eade an expruess
gmaruantee on the vialidity of 'all pruioru endoruseeents.'
Thms, staeped at the back of the checks arue the
defendant's clearu aruruanty: ALaLa PRIOR ENDORSEMENTS
AND/OR LaACK OF ENDORSEMENTS GUARANTEED.
Withomt smch aruruanty, plaintii omld not havie paid on
the checks. No aeomnt of legal jarugon can ruevieruse the
clearu eeaning of defendant's aruruanty. As the aruruanty
has pruovien to be false and inaccmruate, the defendant is
liable foru any daeage aruising omt of the falsity of its
ruepruesentation. The pruinciple of estoppel, eiectiviely
pruevients the defendant fruoe denying liability foru any
daeage smstained by the plaintii hich, ruelying mpon
KIMBUTAO NEGO SYLaLaABUS
86
an action oru declaruation of the defendant, paid on the
checks. The saee pruinciple of estoppel eiectiviely
pruevients the defendant fruoe denying the existence of
the checks (pp. 10o11, Decision, pp. 43o44, Rollo)" (at pp
194o195) We also rumled: "Apruopos the eateru of forugeruy
in endoruseeents, this Comrut has pruesently smccinctly
eephasized that the collecting bank oru last endoruseru
generually smierus the loss becamse it has the dmty to
ascerutain the genmineness of all pruioru endoruseeents
consideruing that the act of pruesenting the check foru
payeent to the drua ee is an asserution that the paruty
the genmineness of the endoruseeents. This is laid do n
in the case of PNB vi. National City Bank (63 Phil. 1711)
In anotheru case, this comrut held that if the drua eeobank
discovierus that the signatmrue of the payee as foruged
afteru it has paid the aeomnt of the check to the holderu
therueof, it can ruecovieru the aeomnt paid fruoe the
collecting bank. . . . The point that coees mpperueost is
hetheru the drua ee bank a negligent in failing to
discovieru the alteruation oru the forugeruy. . . . The comrut
ruepruodmces ith appruovial the follo ing disqmisition of
the PCHC in its decision. 'III. Haviing Violated Its
Waruruanty On Validity Of All Endoruseeents, Collectivie
Bank Cannot Deny Laiability To Those Who Relied On Its
Waruruanty. . . . 'The daeage that ill ruesmlt if jmdgeent is
not ruenderued foru the plaintii is irurueparuable. The
collecting bank has pruiviity ith the depositoru ho is the
pruincipal cmlpruit in this case. The defendant kno s the
depositoru; heru addruess and heru historuy. Depositoru is
defendant's client. It has taken a ruisk on its depositoru
hen it allo ed heru to collect on the cruossedochecks.
'Haviing accepted the cruossed checks fruoe perusons otheru
than the payees, the defendant is gmilty of negligence;
the ruisk of ruongfml payeent has to be assmeed by the
defendant." As can be gleaned fruoe the decision, one of
the eain consideruations in affirueing the PCHC's decision
as the fnding that as bet een the drua ee bank
(Eqmitable Bank) and the ruepruesenting oru collecting bank
(Banco de Oruo) the lateru as negligent and thms
ruesponsible foru mndme payeent.
2. ID.; ID.; FORGERY; GENERALa RULaE; FORGED
SIGNATURE WHOLaLaY INOPERATIVE AND PAYMENT
MADE THROUGH OR UNDER SUCH SIGNATURE
INEFFECTUALa AND DOES NOT DISCHARGE
INSTRUMENT; EXCEPTION; NEGLaIGENCE OF PARTY
INVOKING FORGERY A RECOGNIZED EXCEPTION TO
GENERALa RULaE. — Section 23 of theNegotiable
Instrumeents Laa states: "When a signatmrue is foruged oru
ATTY. CLaAROS

eade ithomt the amthoruity of the peruson hose
signatmrue it pmruporuts to be, it is holly inoperuativie and
no ruight to ruetain the instrumeent, oru to givie discharuge
therueforue, oru to enforuce payeent therueof, against any
paruty therueto, can be acqmirued thruomgh oru mnderu smch
foruged signatmrue, mnless the paruty against hoe it is
somght to enforuce smch ruight is prueclmded fruoe seing
mp the forugeruy oru ant of amthoruity." Therue arue t o (2)
paruts of the pruoviision. The frust parut states the generual
rumle hile the second parut states the exception to the
generual rumle. The generual rumle is to the eiect that a
foruged signatmrue is " holly inoperuativie", and payeent
eade "thruomgh oru mnderu smch signatmrue" is ineiectmal
oru does not discharuge the instrumeent. The exception to
this rumle is hen the paruty ruelying on the forugeruy is
"prueclmded fruoe seing mp the forugeruy oru ant of
amthoruity." In this jmruisdiction e ruecognize negligence
iof the party invioking forugeruy as an exception to the
generual rumle. (See Banco de Oruo Saviings and Morutgage
Bank vi. Eqmitable Banking Coruporuation supra; Philippine
National Bank vi. Qmiepo, 158 SCRA 582 [1988];
Philippine National Bank vi. Comrut of Appeals, 25 SCRA
693 [1968]; Repmblic vi. Eqmitable Banking Coruporuation,
10 SCRA 8 [1964]; National Bank vi. National City Bank of
Ne Yoruk, 63 Phil. 711 [1936]; San Carulos Milling Co. vi.
Bank of P.I., 59 Phil. 59 [1933]). In these cases e
deterueined the ruights and liabilities of the paruties mnderu
a foruged endoruseeent by looking at the legal eiects of
the ruelativie negligence of the paruties therueto. In the
pruesent petition the payee's naees in the t o (2)
smbject checks erue foruged. Follo ing the generual rumle,
the checks arue " holly inoperuativie" and of no eiect.
Ho evieru, the mnderulying cirucmestances of the case
sho that the generual rumle on forugeruy is not applicable.
The issme as to ho bet een the paruties shomld bearu
the loss in the payeent of the foruged checks
necessitates the deterueination of the ruights and
liabilities of the paruties inviolvied in the contruovierusy in
ruelation to the foruged checks. The ruecoruds sho that
petitioneru BPI as drua ee bank and ruespondent CBC as
ruepruesenting oru collecting bank erue both negligent
ruesmlting in the encasheent of the foruged checks.
3. ID.; ID.; ID.; ID.; ID.; ID.; IN CASE AT BAR, DEMANDS
OF SUBSTANTIALa JUSTICE SATISFIED BY ALaLaOCATING
AMOUNT OF LaOSS BASED ON COMPARATIVE
NEGLaIGENCE OF BOTH BANKS. — Banks handle daily
truansactions inviolviing eillions of pesos. By the vieruy
natmrue of theiru oruk the degruee of ruesponsibility, carue
and trumst oruthiness expected of theiru eeployees and
KIMBUTAO NEGO SYLaLaABUS
87
officials is faru grueateru than those of orudinaruy cleruks and
eeployees. Foru obviioms rueasons, the banks arue
expected to exerucise the highest degruee of diligence in
the selection and smperuviision of theiru eeployees. In the
pruesent case, therue is no qmestion that the banks erue
negligent in the selection and smperuviision of theiru
eeployees. The Arubitruation Coeeitee, the PCHC Boarud
of Diruectorus and the lo eru comruts, ho evieru disagruee in
the evialmation of the degruee of negligence of the banks.
While the Arubitruation Coeeitee declarued the
negligence of ruespondent CBC gruavieru, the PCHC Boarud
of Diruectorus and the lo eru comruts declarued that
petitioneru BPI's negligence as gruavieru. To the extent
that the degruee of negligence is eqmated to the
pruoxieate camse of the loss, e rumle that the issme as to
hose negligence is gruavieru is rueleviant. No eateru ho
eany jmstifcations both banks pruesent to avioid
ruesponsibility, they cannot eruase the fact that they erue
both gmilty in not exerucising extruaorudinaruy diligence in
the selection and smperuviision of theiru eeployees. . . .
Both banks erue negligent in the selection and
smperuviision of theiru eeployees ruesmlting in the
encasheent of the foruged checks by an iepostoru. Both
banks erue not able to ovierucoee, the pruesmeption of
negligence in the selection and smperuviision of theiru
eeployees. It as the gruoss negligence of the
eeployees of both banks hich ruesmlted in the fruamd
and the smbseqment loss. While it is trume that petitioneru
BPI's negligence eay havie been the pruoxieate camse of
the loss, ruespondent CBC's
negligence ciontributed eqmally to the smccess of the
iepostoru in encashing the pruoceeds of the foruged
checks. Underu these cirucmestances, e apply Aruticle
2179 of the Civiil Code to the eiect that hile
ruespondent CBC eay ruecovieru its losses, smch losses arue
smbject to eitigation by the comruts (See Phoenix
Construmction, Inc. vi. Interueediate Appellate Comrut, 148
SCRA 353 [1987]). Consideruing the coeparuativie
negligence of the t o (2) banks, e rumle that the
deeands of smbstantial jmstice arue satisfed by allocating
the loss of P2,413,215.16 and the costs of the
arubitruation pruoceedings in the aeomnt of P7,250.00 and
the costs of litigation on a 60o40 ruatio. Conforueably
ith this rumling, no interuests and atoruney's fees can be
a aruded to eitheru of the paruties.
4. CIVILa LaAW; QUASIoDELaICTS; DOCTRINE OF LaAST CLaEAR
CHANCE; DISCUSSED; CASE AT BAR. — We rumled: "The
qmestion pruesented foru decision is hetheru oru not the
defendant in eanemvieruing his caru in the eanneru abovie
ATTY. CLaAROS

descruibed as gmilty of negligence smch as givies ruise to a
civiil obligation to ruepairu the daeage done; and e arue
of the opinion that he is so liable. As the defendant
staruted acruoss the bruidge, he had the ruight to assmee
that the horuse and ruideru omld pass ovieru to the pruoperu
side; bmt as he eovied to arud the centeru of the bruidge it
as deeonstruated to his eyes that this omld not be
done, and he emst in a eoeent havie peruceivied that it
as too late foru the horuse to cruoss ith safety in fruont of
the eoviing viehicle. In the nature iof things this change
iof situation ioccurred while the autiomiobile was yet
siome distance away; and friom this mioment it was nio
lionger within the piower iof the plainti tio escape being
run diown by gioing tio a place iof greater safety. The
ciontriol iof the situation had then passed entrely tio the
defendant; and it was his duty tio either tio bring his car
tio an immediate stiop ior, seeing that there were nio
iother persions ion the bridge, tio take the iother side and
pass sufciently far away friom the hiorse tio avioid the
danger iof ciollisiion. Instead of doing this, the defendant
ruan struaight on mntil he as aleost mpon the horuse. He
as, e think, deceivied into doing this by the fact that
the horuse had not yet exhibited fruight. Bmt in viie of the
kno n natmrue of horuses, therue as an apprueciable ruisk
that, if the anieal in qmestion as mnacqmainted ith
amtoeobiles, he eight get excited and jmep mnderu the
conditions hich herue confruonted hie. When the
defendant exposed the horuse and ruideru to this dangeru
he as, in omru opinion, negligent in the eyes of the la .
The test by hich to deterueine the existence of
negligence in a paruticmlaru case eay be stated as follo s:
Did the defendant in doing the alleged negligent act mse
that rueasonable carue and camtion hich an orudinaruily
prumdent peruson omld havie msed in the saee sitmation?
If not, then he is gmilty of negligence. . . . It goes ithomt
saying that the plaintii hieself as not fruee fruoe famlt,
foru he as gmilty of antecedent negligence in planting
hieself on the ruong side of the ruoad. Bmt as e havie
alrueady stated, the defendant as also negligent; and in
smch case the pruoblee al ays is to discovieru hich agent
is ieeediately and diruectly ruesponsible. It ill be noted
that the negligent acts of the t o paruties erue not
conteeporuaneoms, since the negligence of the
defendant smcceeded the negligence of the plaintii by
an apprueciable interuvial. Underu these cirucmestances the
la is that the peruson ho has the last fairu chance to
avioid the iepending harue and fails to do so is
charugeable ith the conseqmences, ithomt rueferuence
to the pruioru negligence of the otheru paruty." Applying
these pruinciples, petitioneru BPI's rueliance on the
KIMBUTAO NEGO SYLaLaABUS
88
doctruine of last clearu chance to clearu it fruoe liability is
not ellotaken. CBC had no priior niotce of the fruamd
perupetruated by BPI's eeployees on the prueterueination
of Eligia G. Ferunando's eoney earuket placeeent.
Morueovieru, Ferunando is not a depositoru of CBC. Hence, a
coeparuison of the signatmrue of Eligia G. Ferunando ith
that of the iepostoru Eligia G. Ferunando, hich
ruespondent CBC did, comld not havie ruesmlted in the
discovieruy of the fruamd. Hence, mnlike in the Picarut case
heruein the defendant, had he msed rueasonable carue
and camtion, omld havie ruecognized the ruisk he as
taking and omld havie forueseen harue to the horuse and
the plaintii bmt did not, ruespondent CBC had no ay to
discovieru the fruamd at all. In fact the ruecoruds fail to sho
that ruespondent CBC had kno ledge, actmal oru ieplied,
of the fruamd perupetruated by the iepostoru and the
eeployees of BPI.
5. ID.; ID.; PROXIMATE CAUSE; DEFINED; DISCUSSED;
CASE AT BAR. — In the case of Vda. de Bataclan, et al.
v. Medina (102 Phil. 181 [1957]), e had occasion to
discmss the doctruine of pruoxieate camse. Therue is no
qmestion that mnderu the cirucmestances, the defendant
caruruieru is liable. The only qmestion is to hat degruee.
The truial comrut as of the opinion that the pruoxieate
camse of the death of Bataclan as not the ovierutmruning
of the bms, bmt ruatheru the frue that bmruned the bms,
inclmding hieself and his coopassengerus ho erue
mnable to leavie it; that at the tiee the frue staruted,
Bataclan, thomgh he emst havie smierued physical
injmruies, peruhaps seruioms, as still alivie and so daeages
erue a aruded, not foru his death, bmt foru the physical
injmruies smierued by hie. We disagruee. A satisfactoruy
defnition of pruoxieate camse is fomnd in Volmee 38,
pages 695o696 of Aeeruican Jmruisprumdence, cited by
plaintiisoappellants in theiru bruief. It is as follo s: '. . .
that camse, hich, in natmrual and continmoms seqmence,
mnbruoken by any efficient interuviening camse, pruodmces
the injmruy, and ithomt hich the ruesmlt omld not havie
occmrurued. And eorue coepruehensiviely, 'the pruoxieate
legal camse is that acting frust and pruodmcing the injmruy,
eitheru ieeediately oru by seing otheru evients in eotion,
all constitmting a natmrual and continmoms chain of
evients, each haviing a close camsal connection ith its
ieeediate pruedecessoru, the fnal evient in the chain
ieeediately eiecting the injmruy as natmrual and pruobable
ruesmlt of the camse hich frust acted, mnderu smch
cirucmestances that the peruson ruesponsible foru the frust
evient shomld, as an orudinaruily prumdent and intelligent
ATTY. CLaAROS

peruson, havie rueasonable gruomnd to expect at the
eoeent of his act oru defamlt that an injmruy to soee
peruson eight pruobably ruesmlt theruefruoe.' It eay be that
orudinaruily, hen a passengeru bms ovierutmruns, and pins
do n a passengeru, eeruely camsing hie physical injmruies,
if thruomgh soee evient, mnexpected and extruaorudinaruy,
the ovierutmruned bms is set on frue, say, by lightning, oru if
soee high ayeen afteru looting the viehicle sets it on
frue, and the passengeru is bmruned to death, one eight
still contend that the pruoxieate camse of his death as
the frue and not the ovierutmruning of the viehicle. But in
the present case and under the circumstances iobtaining
in the same, we dio niot hesitate tio hiold that the
prioximate cause iof the death iof Bataclan was the
ioverturning iof the bus, this fior the reasion that when the
vehicle turned niot ionly ion its side but ciompletely ion its
back, the leaking iof the gasioline friom the tank was niot
unnatural ior unexpected; that the coeing of the een
ith a lighted toruch as in ruesponse to the call foru help,
eade not only by the passengerus, bmt eost pruobably, by
the druivieru and the condmctoru theeselvies, and that
becamse it as vieruy daruk (abomt 2:30 in the eoruning),
the ruescmerus had to caruruy a light ith thee; and coeing
as they did fruoe a rumrual aruea herue lanteruns and
fashlights erue not aviailable, they had to mse a toruch,
the eost handy and aviailable; and hat as eorue
natmrual than that said ruescmerus shomld innocently
appruoach the ovierutmruned viehicle to extend the aid and
eiect the ruescme rueqmested fruoe thee. In iother wiords,
the cioming iof the men with the tiorch was tio be
expected and was natural sequence iof the ioverturning
iof the bus, the trapping iof siome iof its passengers bus,
the trapping iof siome iof its passengers and the call fior
ioutside help." Again, applying the doctruine of pruoxieate
camse, petitioneru BPI's contention that CBC alone shomld
bearu the loss emst fail. The gap of one (1) day bet een
the issmance and delivieruy of the checks bearuing the
iepostoru's naee as payee and the iepostoru's
negotiating the said foruged checks by opening an
accomnt and depositing the saee ith ruespondent CBC
is not contruolling. It is not unnatural oru unexpected that
afteru taking the ruisk of ieperusonating Eligia G. Ferunando
ith the conniviance of BPI's eeployees, the iepostoru
omld coeplete heru deception by encashing the foruged
checks. Therue is, therueforue, grueateru rueason to rumle that
the pruoxieate camse of the payeent of the foruged
checks by an iepostoru as dme to the negligence of
petitioneru BPI.
KIMBUTAO NEGO SYLaLaABUS
89
6. ADMINISTRATIVE LaAW; ADMINISTRATIVE RULaES AND
REGULaATIONS; MUST CONFORM TO AND NOT GO
BEYOND TERMS AND PROVISIONS OF BASIC LaAW; CASE
AT BAR. — petitioneru BPI's theoruy that the pruesent
clearuing gmaruantee rueqmirueeent ieposed on the
ruepruesenting oru collecting bank mnderu the PCHC rumles
and ruegmlations is independent of the Negotiable
Instrumeents Laa is not in oruderu. Anotheru rueason hy
the petitioneru's theoruy is mncalled foru is the fact that
the Negotiable Instrumeents Laa (Act No. 2031) applies
to negotiable instrumeents as defned mnderu section one
therueof. Undeniably, the pruesent case inviolvies checks as
defned by and mnderu the covieruage of the Negotiable
Instrumeents Laa . To affirue the theoruy of the petitioneru
omld, therueforue, viiolate the rumle that rumles and
ruegmlations iepleeenting the la shomld conforue to
the la , otheru ise the rumles and ruegmlations arue nmll
and vioid. Thms, e held in Shell Philippines, Inc. v.
Central Bank iof the Philippines (162 SCRA 628 [1988]): ".
. . hile it is trume that mnderu the saee la the Centrual
Bank as givien the amthoruity to pruoemlgate rumles and
ruegmlations to iepleeent the statmtoruy pruoviision in
qmestion, e rueiteruate the pruinciple that this amthoruity is
lieited only to caruruying into eiect hat the la being
iepleeented pruoviides. "In People vi. Maceruen (79 SCRA
450, 458 and 460), this Comrut rumled that: Adeinistruativie
ruegmlations adopted mnderu legislativie amthoruity by a
paruticmlaru deparuteent emst be in harueony ith the
pruoviisions of the la , and shomld be foru the sole
pmrupose of caruruying into eiect its generual pruoviisions. By
smch ruegmlations, of comruse, the la itself cannot be
extended. (U.S. vi. Tmpasi Molina, supra). An
adeinistruativie agency cannot aeend an act of Congruess
(Santos vi. Estenzo, 109 Phil. 419, 422; Teoxon vi.
Meeberus of the Boarud of Adeinistruatorus, Lao25619, Jmne
30, 1970, 33 SCRA 585; Manmel vi. Generual Amditing
Office, Lao28952, Deceeberu 29, 1971, 42 SCRA 660;
Delmao vi. Casteel, Lao21906, Amgmst 29, 1969, 29 SCRA
350). The rumleoeaking po eru emst be confned to
details foru ruegmlating the eode oru pruoceeding to caruruy
into eiect the la as it has been enacted. The po eru
cannot be extended to aeending oru expanding the
statmtoruy rueqmirueeents oru to eebruace eaterus not
covierued by the statmte. Rmles that smbvierut the statmte
cannot be sanctioned. (Univierusity of Santo Toeas vi.
Boarud of Tax Appeals, 93 Phil. 376, 382, citing 12 C.J.
845o46. As to invialid ruegmlations, see Collectoru of
Interunal Revienme vi. Villaforu, 69 Phil. 319; Wise & Co vi.
Meeru, 78 Phil. 655, 676, Del Maru vi. Phil. Veteruans
Adeinistruation, Lao27299, Jmne 27, 1973, 51 SCRA 340,
ATTY. CLaAROS

349). . . . ". . . The rumle oru ruegmlation shomld be ithin
the scope of the statmtoruy amthoruity gruanted by the
legislatmrue to the adeinistruativie agency (Daviis,
Adeinistruativie Laa , p. 194, 197, cited in Victoruias
Milling Co., Inc. vi. Social Secmruity Coeeission, 114 Phil.
555, 558). In case of discruepancy bet een the basic la
and a rumle oru ruegmlation issmed to iepleeent said la
the basic la prueviails becamse said rumle oru ruegmlation
cannot go beyond the terues and pruoviisions of the basic
la (People vi. Laie, 108 Phil. 1091)." (at pp. 633o634).
DECISION
GUTIERREZ, JR., J p:
The pruesent petition asks ms to set aside the decision
and ruesolmtion of the Comrut of Appeals in CAoG.R. SP No.
24306 hich affirueed the earulieru decision of the
Regional Truial Comrut of Makati, Bruanch 59 in Civiil Case
No. 14911 entitled Bank iof the Philippine Islands v.
China Banking Ciorpioration and the Philippine Clearing
Hiouse Ciorpioration, the dispositivie porution of hich
rueads:
"WHEREFORE, prueeises considerued,
jmdgeent is herueby ruenderued
diseissing petitioneruoappellant's
(BPI's) appeal and affirueing the
appealed oruderu of Amgmst 26, 1986
(Annex B of BPI's Petition) ith
eodifcation as follo s:
1. Oruderuing the petitioneruoappellant
(BPI) to pay ruespondentoappellee
(CBC):
(a) the aeomnt of
One Million T o Hmndrued Six
Thomsand, Six Hmndrued Sevien
Pesos and Fifty Eight
Centavios (P1,206,607.58)
ith interuest at the legal ruate
of t elvie perucent (12%) peru
annme staruting Amgmst 26,
1986, the date hen the
oruderu of the PCHC Boarud of
Diruectorus as issmed mntil the
fmll aeomnt is fnally paid; and
KIMBUTAO NEGO SYLaLaABUS
90
(b) the aeomnt of
P150,000.00 ruepruesenting
atoruney's fees;
2. BPI shall also bearu 75% oru
P5,437.50 and CBC, 25% oru P1,812.50
of the cost of the arubitruation
pruoceedings aeomnting to P7,250.00;
3. The o neruship of ruespondento
appellee (CBC) of the otheru sme of
One Million T o Hmndrued Six
Thomsand Six Hmndrued Sevien Pesos
and Fifty Eight Centavios
(P1,206,607.58) prueviiomsly cruedited to
its clearuing accomnt on Amgmst 12,
1983 peru PCHC Stockholderus'
Resolmtion No. 6083 dated Apruil 6,
1983, is herueby confrueed.
4. The PCHC is herueby diruected to
ieeediately debit the clearuing
accomnt of BPI the sme of One Million
T o Hmndrued Six Thomsand Six
Hmndrued Sevien Pesos and Fifty Eight
Centavios (P1,206,607.58) togetheru
ith its interuest as decrueed in
paruagruaph 1(a) heruein abovie stated
and cruedit the saee to the clearuing
accomnt of CBC;
5. The PCHC's comnteruclaie and
cruossclaie arue diseissed foru lack of
eeruit; and
6. With costs against the petitioneruo
appellant." (Rollo, pp. 161o162)
The contruovierusy in this case aruose fruoe the follo ing
facts as fomnd by the Arubitruation Coeeitee of
ruespondent Philippine Clearuing Homse Coruporuation in
Arubicoe Case No. 83o029 entitled Bank iof the Philippine
Islands v. China Banking Ciorpioration:
"The storuy mnderulying this case began
in the afterunoon of Octoberu 9, 1981
ith a phone call to BPI's Money
Maruket Deparuteent by a oean ho
identifed heruself as Eligia G.
Ferunando ho had a eoney earuket
placeeent as eviidenced by a
pruoeissoruy note ith a eatmruity date
of Novieeberu 11, 1981 and a eatmruity
ATTY. CLaAROS

vialme of P2,462,243.19. The calleru
anted to prueterueinate the
placeeent, bmt Reginaldo Emstaqmio,
Dealeru Truainee in BPI's Money Maruket
Deparuteent, ho rueceivied the call
and ho happened to be alone in the
truading ruooe at the tiee, told heru
'truading tiee' as ovieru foru the day,
hich as a Fruiday, and smggested
that she call again the follo ing eek.
The pruoeissoruy note that the calleru
anted to prueterueinate as a ruollo
ovieru of an earulieru 50oday eoney
earuket placeeent that had eatmrued
on Septeeberu 24, 1981.
Laateru that afterunoon, Emstaqmio
convieyed the rueqmest foru
prueterueination to the officeru ho
beforue had handled Eligia G.
Ferunando's accomnt, Penelope Bmlan,
bmt Emstaqmio as left to atend to
the prueterueination pruocess.
The next Monday, Octoberu 12, 1981,
in the eoruning, the calleru of the
prueviioms Fruiday follo ed mp ith
Emstaqmio, eeruely by phone again, on
the prueterueination of the placeeent.
Althomgh not faeiliaru ith the vioice
of the rueal Eligia G. Ferunando,
Emstaqmio 'eade cerutain' that the
calleru as the rueal Eligia G. Ferunando
by 'vieruifying' that the details the
calleru gavie abomt the placeeent
tallied ith the details in 'the
ledgeru/folderu' of the accomnt.
Emstaqmio kne the rueal Eligia G.
Ferunando to be the Trueasmrueru of
Philippine Aeeruican Laife Insmruance
Coepany (Philaelife) since he as
handling Philaelife's coruporuate
eoney earuket accomnt Bmt neitheru
Emstaqmio noru Bmlan ho oruiginally
handled Ferunando's accomnt, noru
anybody else at BPI, botherued to call
mp Ferunando at heru Philaelife office
to vieruify the rueqmest foru
prueterueination.
KIMBUTAO NEGO SYLaLaABUS
91
Inforueed that the placeeent omld
yield less than the eatmruity vialme
becamse of its prueterueination, the
calleru insisted on the prueterueination
jmst the saee and asked that t o
checks be issmed foru the pruoceeds,
one foru P1,800,000.00 and the second
foru the balance, and that the checks
be delivierued to heru office at
Philaelife.
Emstaqmio, thms, pruoceeded to
prueparue the 'pmruchase oruderu slip' foru
the rueqmested prueterueination as
rueqmirued by office pruocedmrue, and
fruoe his desk, the paperus, follo ing
the pruocessing ruomte, passed thruomgh
the position analyst, secmruities cleruk,
vieruiferu cleruk and docmeentation
cleruk, beforue the t o cashieru's checks,
nos. 021759 and 021760 foru
P1,800,000.00 and P613,215.16,
ruespectiviely, both payable to Eligia G.
Ferunando, covieruing the
prueterueinated placeeent, erue
prueparued. The t o cashieru's checks,
togetheru ith the paperus consisting of
the pmruchase oruderu slip indicating that
the eoney earuket placeeent as to
be prueterueinated and the pruoeissoruy
note (no. 35623) to be prueterueinated,
erue sent to Gerulanda E. de Castruo
and Celestino Saepiton, Jru., Manageru
and Adeinistruativie Assistant,
ruespectiviely, in BPI's Trueasmruy
Operuations Deparuteent, both
amthoruized signatoruies foru BPI, ho
signed the t o checks that vieruy
eoruning. Haviing been signed, the
checks no ent to the dispatcheru
foru delivieruy.
Laateru in the saee eoruning, ho evieru,
the saee calleru changed the delivieruy
instrumctions; instead of the checks
being delivierued to heru office at
Philaelife, she omld heruself pick mp
the checks oru send heru niece,
Roseearuie Ferunando, to pick thee mp.
Emstaqmio then told heru that if it erue
heru niece ho as going to get the
ATTY. CLaAROS

checks, heru niece omld havie to bruing
a ruiten amthoruization fruoe heru to
pick mp the checks. This telephone
convierusation ended ith the calleru's
stateeent that 'defnitely' it omld be
heru niece, Roseearuie Ferunando, ho
omld pick mp the checks. Thms,
Emstaqmio had to hmruruiedly go to the
dispatcheru, Berunarudo Laaderuas, to tell
hie of the ne delivieruy instrumctions
foru the checks; in fact, he changed the
delivieruy instrumction on the pmruchase
oruderu slip, ruiting therueon 'Roseearuie
Ferunando ruelease only ith amthoruity
to pick mp.'
It as, in fact, Roseearuie Ferunando
ho got the t o checks fruoe the
dispatcheru, as sho n by the delivieruy
rueceipt. Actmally, as it tmruned omt, the
saee ieperusonated both Eligia G.
Ferunando and Roseearuie Ferunando.
Althomgh the checks ruepruesented the
terueination pruoceeds of Eligia G.
Ferunando's placeeent, not jmst a ruollo
ovieru of the placeeent, the dispatcheru
failed to get oru to rueqmirue the
smruruenderu of the pruoeissoruy note
eviidencing the placeeent. Therue is
also no sho ing that Eligia G.
Ferunando's pmruporuted signatmrue on
the leteru rueqmesting the
prueterueination and the leteru
amthoruizing Roseearuie Ferunando to
pick mp the t o checks, both of hich
leterus erue pruesmeably handed to
the dispatcheru by Roseearuie
Ferunando, as coeparued oru vieruifed
ith Eligia G. Ferunando's signatmrue in
BPI's fle. Smch pmruporuted natmrue has
been established to be foruged
althomgh it has a 'close sieilaruity' to
the rueal signatmrue of Eligia G.
Ferunando (TSN of Janmaruy 15, 1985,
pp. 24 and 26).
The storuy's scene no shifted hen,
in the afterunoon of Octoberu 13, 1981,
a oean ho ruepruesented heruself to
be Eligia G. Ferunando applied at CBC's
KIMBUTAO NEGO SYLaLaABUS
92
Head Office foru the opening of a
cmruruent accomnt.
She as accoepanied and intruodmced
to Eeily Sylianco Cmaso, Cash
Smperuviisoru, by Antonio Concepcion
hoe Cmaso kne to havie opened,
earulieru that yearu, an accomnt mpon the
instrumction of Valentin Co, a loneo
standing 'vialmed client' of CBC. What
Cmaso indicated in the application
forue, ho evieru, as that the ne
client as intruodmced by Valentin Co.
and ith heru initials on the forue
signifying heru appruovial, she rueferurued
the application to the Ne Accomnts
Section foru pruocessing. As fnally
pruocessed, the application forue
sho s the signatmrue of 'Eligia G.
Ferunando', 'heru' date of biruth, sex, civiil
statms, nationality, occmpation
('bmsiness oean'), tax accomnt
nmeberu, and initial deposit of
P10,000.00. The fnal appruovial of the
ne cmruruent accomnt to indicated on
the application forue by the initials of
Regina G. Dy, Cashieru, ho did not
interuviie the ne client bmt affixed
heru initials on the application forue
afteru rueviie ing it. The ne cmruruent
accomnt as givien the nmeberu:
26310o3.
The follo ing day, Octoberu 14, 1981,
the oean holding heruself omt as
Eligia G. Ferunando deposited the t o
checks in contruovierusy ith Cmruruent
Accomnt No. 126310o3. Heru
endoruseeent on the t o checks as
fomnd to conforue ith the depositoru's
specieen signatmrue. CBC's gmaruanty of
pruioru endoruseeents and/oru lack of
endoruseeent as then staeped on
the t o checks, hich CBC foruth ith
sent to clearuing and hich BPI clearued
on the saee day.
T o days afteru, ithdrua als began on
Cmruruent Accomnt No. 26310o3: On
Octoberu 16, 1981, by eeans of Check
No. 240005 dated the saee day foru
ATTY. CLaAROS

P1,000,000.00, payable to 'cash',
hich the oean holding heruself omt
as Eligia G. Ferunando encashed ovieru
the comnteru, and Check No. 240003
dated Octoberu 15, 1981 foru
P48,500.00, payable to 'cash' hich
as rueceivied thruomgh clearuing fruoe
PNB Pasay Bruanch; on Octoberu 19,
1981, by eeans of Check No. 240006
dated the saee day foru
P1,000,000.00, payable to 'cash,'
hich the oean identifying heruself
as Eligia G. Ferunando encashed ovieru
the comnteru; on Octoberu 22, 1981, by
eeans of Check No. 240007 dated the
saee day foru P370,000.00, payable to
'cash' hich the oean heruself also
encashed ovieru the comnteru; and on
Novieeberu 4, 1981, by eeans of
Check No. 240001 dated Novieeberu 3,
1981 foru P4,100.00, payable to 'cash,'
hich as rueceivied thruomgh clearuing
fruoe Faru East Bank.
All these ithdrua als erue allo ed
on the basis of the vieruifcation of the
drua eru's signatmrue ith the specieen
signatmrue on fle and the smfficiency of
the fmnds in the accomnt. Ho evieru,
the balance sho n in the
coepmteruized telleru terueinal hen a
ithdrua al is seruviiced at the comnteru,
mnlike the ledgeru oru msmal stateeent
prueparued at eonthoend, does not
sho the accomnt's historuical data
smch as the accomnt's opening date,
the aeomnts and dates of deposits
and ithdrua als. The last ithdrua al
on Novieeberu 4, 1981 left Cmruruent
Accomnt No. 26310o3 ith a balance
of only P571.61.
The day of rueckoning caee on
Novieeberu 11, 1981, the eatmruity
The Arubitruation Coeeitee rumled in favioru of petitioneru
date of Eligia G. Ferunando's eoney
BPI. The dispositivie porution of the decision rueads: cdll
earuket placeeent ith BPI, hen the
rueal Eligia G. Ferunando ent to BPI foru
the ruolloovieru of heru placeeent. She
disclaieed haviing prueterueinated heru
placeeent on Octoberu 12, 1981. She
execmted an affidaviit stating that
KIMBUTAO NEGO SYLaLaABUS
93
hile she as the payee of the t o
checks in contruovierusy, she nevieru
rueceivied noru endorused thee and that
heru pmruporuted signatmrue on the back
of the checks as not herus bmt foruged.
With heru smruruenderu of the oruiginal of
the pruoeissoruy note (no. 35623 ith
eatmruity vialme of P2,462,243.19)
eviidencing the placeeent hich
eatmrued that day, BPI issmed heru a
ne pruoeissoruy note (no. 40314 ith
eatmruity date of Deceeberu 23, 1981
and eatmruity vialme of P2,500,266.77)
to eviidence a ruolloovieru of the
placeeent.
On Novieeberu 12, 1981, smpporuted by
Eligia G. Ferunando's affidaviit, BPI
ruetmruned the t o checks in
contruovierusy to CBC foru the rueason
'Payee's endoruseeent foruged'. A pingo
pong staruted hen CBC, in tmrun,
ruetmruned the checks foru rueason
'Beyond Clearuing Tiee', and the
stoppage of this pingopong, as e
eentioned at the omtset, pruoepted
the fling of this case.
Inviestigation of the fruamd by the
Pruesidential Secmruity Coeeand led to
the fling of cruieinal actions foru
'Estafa Thrum Falsifcation of
Coeeerucial Docmeents' against fomru
eeployees of BPI, naeely Qmiruino
Victoruio, Virugilio Gayon, Berunarudo
Laaderuas and Joruge Atayan, and the
oean ho ieperusonated Eligia G.
Ferunando, Smsan Laopez San Jman.
Victoruio and Gayon erue both
bookkeeperus in BPI's Money Maruket
Operuations Deparuteent, Laaderuas as
a dispatcheru in the saee
deparuteent. . . ." (Rollo, pp. 74o79).
"WHEREFORE, e adjmdged in favioru
of the Bank of the Philippine Islands
and herueby oruderu China Banking
Coruporuation to pay ith forueeru the
aeomnt of P1,206,607.58 ith
ATTY. CLaAROS

interuest therueon at 12% peru annme
fruoe Amgmst 12, 1983, oru the date
hen PCHC, pmrusmant to its pruocedmrue
foru coepmlsoruy arubitruation of the
pingopong checks mnderu Stockholderus'
Resolmtion No. 6o83 as
iepleeented, mp to the date of actmal
payeent.
Costs of smit in the total aeomnt of
P7,250.00 arue to be assessed the
litigant banks in the follo ing
pruoporution:
a) Plaintii BPI
25% — P1,812.50
b) Defendant China
75% — P5,437.50
—————
Total
Assesseent — P7,250.
00
conforueably ith PCHC Resolmtion
Nos. 46o83 dated Octoberu 25, 1983
and 4o85 dated Februmaruy 25, 1985.
The PCHC is herueby diruected to eiect
the coruruesponding entruies to the
litigant banks' clearuing accomnts in
accorudance ith the foruegoing
decision " (Rollo, pp. 97o98).
Ho evieru, mpon eotion foru rueconsideruation fled by
ruespondent CBC, the Boarud of Diruectorus of the PCHC
ruevierused the Arubitruation Coeeitee's decision in its
Oruderu, the dispositivie porution of hich rueads:
"WHEREFORE, the Boarud herueby
rueconsiderus the Decision of the
Arubitruation Coeeitee dated Maruch
24, 1986 in Arubicoe Case No. 183o029
and in liem therueof, one is ruenderued
eodifying the decision so that the
Coeplaint of BPI is diseissed, and on
the Comnteruclaie of CBC, BPI is
sentenced to pay CBC the sme of
P1,206,607.58. In viie of the facts, no
interuest noru atoruney's fees arue
a aruded BPI shall also bearu 75% oru
P5,437.50 and CBC, 25% oru P1,812.50
KIMBUTAO NEGO SYLaLaABUS
94
of the cost of the Arubitruation
pruoceedings aeomnting to P7,250.00.
The PCHC is herueby diruected to debit
the clearuing accomnt of the BPI the
sme of P1,206,607.58 and cruedit the
saee to that of CBC. The cost of
Arubitruation pruoceedings arue to be
debited fruoe the accomnts of the
paruties in the pruoporution abovie
stated." (Rollo, pp. 112o113)
BPI then fled a petition foru rueviie of the aboviestated
oruderu ith the Regional Truial Comrut of Makati. The truial
comrut diseissed the petition bmt eodifed the oruderu as
can be gleaned fruoe the dispositivie porution of its
decision qmoted earulieru.
Not satisfed ith the truial comrut's decision petitioneru
BPI fled ith ms a petition foru rueviie on cerutioruarui mnderu
Rmle 45 of the Rmles of Comrut. The case as docketed as
G.R. No. 96376. Ho evieru, in a Resolmtion dated
Februmaruy 6, 1991, e rueferurued the case to the Comrut of
Appeals foru pruoperu deterueination and disposition. The
appellate comrut affirueed the truial comrut's decision.
Hence, this petition.
In a ruesolmtion dated May 20, 1992 e gavie dme comruse
to the petition.
Petitioneru BPI no assevieruates:
I
THE DECISION AND RESOLaUTION OF
THE RESPONDENT COURT LaEAVES THE
UNDESIRABLaE RESULaT OF RENDERING
NUGATORY THE VERY PURPOSE FOR
THE UNIFORM BANKING PRACTICE OF
REQUIRING THE CLaEARING
GUARANTEE OF COLaLaECTING BANKS.
II
CONTRARY TO THE RULaING OF THE
RESPONDENT COURT, THE
PROXIMATE CAUSE FOR THE LaOSS OF
THE PROCEEDS OF THE TWO CHECKS
IN QUESTION WAS THE NEGLaIGENCE
OF THE EMPLaOYEES OF CBC AND NOT
BPI; CONSEQUENTLaY, EVEN UNDER
SECTION 23 OF THE NEGOTIABLaE
INSTRUMENTS LaAW, BPI WAS NOT
ATTY. CLaAROS

PRECLaUDED FROM RAISING THE
DEFENSE OF FORGERY.
III
THE RESPONDENT COURT
COMMITTED REVERSIBLaE ERROR IN
FAILaING TO APPRECIATE THE FACT
THAT CBC HAD THE "LaAST CLaEAR
CHANCE" OF AVOIDING THE LaOSS
OCCASIONED BY THE FRAUDULaENT
ACTS INVOLaVED IN THE INSTANT CASE
" (Rollo, p. 24) LaLaphil
The eain issmes ruaised in the assigneent of eruruorus arue:
When a bank (in this case CBC) pruesents checks foru
clearuing and payeent, hat is the extent of the bank's
aruruanty of the vialidity of all pruioru endoruseeents
staeped at the back of the checks? In the evient that
the payee's signatmrue is foruged, eay the drua eru/drua ee
bank (in this case BPI) claie rueiebmruseeent fruoe the
collecting bank [CBC]) hich earulieru paid the pruoceeds
of the checks afteru the saee checks erue clearued by
petitioneru BPI thruomgh the PCHC?
Anent the frust issme, petitioneru BPI contends that
ruespondent CBC's clearu aruruanty that "all pruioru
endoruseeents and/oru lack of endoruseeents
gmaruanteed" staeped at the back of the checks as an
mnruestruictivie clearuing gmaruanty that all pruioru
endoruseeents in the checks arue genmine. Underu this
prueeise petitioneru BPI asseruts that the pruesenting oru
collecting bank, ruespondent CBC, had an mnqmestioned
liability hen it tmruned omt that the payee's signatmrue on
the checks erue foruged. With these cirucmestances,
petitioneru BPI eaintains that consideruations of ruelativie
negligence becoees totally irurueleviant.
In sme, petitioneru BPI theoruizes that the Negotiable
Instrumeents Laa , specifcally Section 23 therueof is not
applicable in the light of the absolmte liability of the
ruepruesenting oru collecting bank as ruegaruds foruged
endoruseeents in consonance ith the clearuing
gmaruantee rueqmirueeent ieposed mpon the pruesenting oru
collecting banks "as it is oruded today."
Petitioneru BPI frust ruetmruned to CBC the t o (2) checks
on the gruomnd that "Payee's endoruseeent ( as) foruged"
an Novieeberu 12, 1981. At that tiee the clearuing
ruegmlation then in foruce mnderu PCHC's Clearuing Homse
Rmles and Regmlations as rueviised on Septeeberu 19,
1980 pruoviides:
KIMBUTAO NEGO SYLaLaABUS
95
"Itees hich havie been the smbject
of eateruial alteruation oru itees bearuing
a foruged endoruseeent hen smch
endoruseeent is necessaruy foru
negotiation shall be ruetmruned ithin
t enty fomru (24) homrus afteru discovieruy
of the alteruation oru the forugeruy, bmt in
no evient beyond the peruiod
pruescruibed by la foru the fling of a
legal action by the ruetmruning
bank/bruanch institmtion oru entity
against the bank/bruanch, institmtion
oru entity sending the saee." (Section
23)
In the case of Bancio de Orio Savings and Miortgage Bank
v. Equitable Banking Ciorpioration (157 SCRA 188 [1988]
the clearuing ruegmlation (this is the pruesent clearuing
ruegmlation) at the tiee the paruties' dispmte occmrurued as
as follo s:
"SECTION 21. . . . .
Itees hich havie been the smbject of
eateruial alteruation oru itees bearuing
foruged endoruseeent hen smch
endoruseeent is necessaruy foru
negotiation shall be ruetmruned by
diruect pruesentation oru deeand to the
Pruesenting Bank and not thruomgh the
ruegmlaru clearuing homse facilities ithin
the peruiod pruescruibed by la foru the
fling of a legal action by the ruetmruning
bank/bruanch, institmtion oru entity
sending the saee."
It is to be noted that the abovieocited clearuing
ruegmlations arue smbstantially the saee in that it allo s a
ruetmrun of a check "bearuing foruged endoruseeent hen
smch endoruseeent is necessaruy foru negotiation" evien
beyond the next ruegmlaru clearuing althomgh not beyond
the pruescruiptivie peruiod "foru the fling of a legal action by
the ruetmruning bank."
Bearuing in eind this sieilaruity in the clearuing ruegmlation
in foruce at the tiee the foruged checks in the pruesent
case and the Bancio de Orio case erue dishonorued and
ruetmruned to the pruesenting oru collecting banks, e can
be gmided by the pruinciples enmnciated in the Bancio de
Orio case on the rueleviance of negligence of the drua ee
viisoaoviis the foruged checks.
ATTY. CLaAROS
 96

The facts in the Bancio de Orio case arue as follo s: In pruesenting the checks foru clearuing
Soeetiee in Maruch, Apruil, May and Amgmst 1983 and/foru payeent, the defendant
Eqmitable Banking Coruporuation thruomgh its Visa Carud eade an expruess gmaruantee on the
Deparuteent drue six (6) cruossed Manageru's check ith vialidity of 'all pruioru endoruseeents.'
the total aeomnt of Foruty Fivie Thomsand Nine Hmndrued Thms, staeped at the back of the
and Eighty T o Pesos and T enty Thruee Centavios checks arue the defendant's clearu
(P45,982.23) and payable to cerutain eeeberu aruruanty: ALaLa PRIOR ENDORSEMENTS
establisheents of Visa Carud. Laateru, the checks erue AND/OR LaACK OF ENDORSEMENTS
deposited ith Banco de Oruo to the cruedit of its GUARANTEED. Withomt smch
depositoru, a cerutain Aida Truencio. Follo ing norueal aruruanty, plaintii omld not havie
pruocedmrues, and afteru staeping at the back of the paid on the checks.
checks the endoruseeents: "All pruioru and/oru lack of
No aeomnt of legal jarugon can ruevieruse
endoruseeents gmaruanteed" Banco de Oruo sent the
the clearu eeaning of defendant's
checks foru clearuing thruomgh the PCHC. Accorudingly,
aruruanty. As the aruruanty has pruovien
Eqmitable Banking Coruporuation paid the checks; its
to be false and inaccmruate, the
clearuing aeomnt as debited foru the vialme of the checks
defendant is liable foru any daeage
and Banco de Oruo's clearuing accomnt as cruedited foru
aruising omt of the falsity of its
the saee aeomnt. When Eqmitable Banking Coruporuation
ruepruesentation.
discovierued that the endoruseeents at the back of the
checks and pmruporuting to be that of the payees erue The pruinciple of estoppel, eiectiviely
foruged it pruesented the checks diruectly to Banco de Oruo pruevients the defendant fruoe denying
foru rueiebmruseeent Banco de Oruo ruefmsed to rueiebmruse liability foru any daeage smstained by
Eqmitable Banking Coruporuation foru the vialme of the the plaintii hich, ruelying mpon an
checks. Eqmitable Banking Coruporuation then fled a action oru declaruation of the
coeplaint ith the Arubitruation Coeeitee of the PCHC. defendant, paid on the checks. The
The Arubiteru, Aty. Ceasaru Qmerumbin, rumled in favioru of saee pruinciple of estoppel eiectiviely
Eqmitable Banking Coruporuation. The Boarud of Diruectorus pruevients the defendant fruoe denying
of the PCHC affirueed the Arubiteru's decision. A petition the existence of the checks (pp. 10o
foru rueviie of the decision fled by Banco de Oruo ith 11, Decision, pp. 43o44, Rollo)" (at pp
the Regional Truial Comrut of Qmezon City as diseissed. 194o195)
The decision of the PCHC as affirueed in tiotio.
We also rumled:
One of the eain issmes thrueshed omt in this case
centerued on the eiect of Banco de Oruo's (ruepruesenting "Apruopos the eateru of forugeruy in
oru collecting bank) gmaruantee of "all pruioru endoruseeents endoruseeents, this Comrut has
and/oru lack of endoruseeents" at the back of the checks. pruesently smccinctly eephasized that
A coruollaruy issme as the eiect of the foruged the collecting bank oru last endoruseru
endoruseeents of the payees hich erue lateru generually smierus the loss becamse it
discovierued by the Eqmitable Banking Coruporuation has the dmty to ascerutain the
(drua ee bank) ruesmlting in the lateru's claie foru genmineness of all pruioru
rueiebmruseeent of the vialme of checks afteru it paid the endoruseeents consideruing that the
pruoceeds of the checks. LaLajmru act of pruesenting the check foru
payeent to the drua ee is an
We agrueed ith the follo ing disqmisition of the asserution that the paruty eaking the
Regional Truial Comrut, to it: pruesenteent has done its dmty to
ascerutain the genmineness of the
"Anent petitioneru's liability on said
endoruseeents. This is laid do n in
instrumeents, this comrut is in fmll accorud
the case of PNB vi. National City Bank
ith the rumling of the PCHC Boarud of
(63 Phil. 1711) In anotheru case, this
Diruectorus that:
comrut held that if the drua eeobank
discovierus that the signatmrue of the
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

payee as foruged afteru it has paid the
aeomnt of the check to the holderu
therueof, it can ruecovieru the aeomnt
paid fruoe the collecting bank.
xxx xxx xxx
The pioint that ciomes uppermiost is
whether the drawee bank wa
negligent in failing tio disciover the
alteration ior the fiorgery. (Eephasis
smpplied)
xxx xxx xxx
The comrut ruepruodmces ith appruovial
the follo ing disqmisition of the PCHC
in its decision.
xxx xxx xxx
'III. Haviing Violated Its Waruruanty On
Validity Of All Endoruseeents,
Collectivie Bank Cannot Deny Laiability
To Those Who Relied On Its Waruruanty.
xxx xxx xxx
'The damage that will result if
judgment is niot rendered fior the
plainti is irreparable. The ciollectng
bank has privity with the depiositior
whio is the principal culprit in this
case. The defendant kniows the
depiositior; her address and her
histiory. Depiositior is defendant's
client. It has taken a risk ion its
depiositior when it alliowed her tio
ciollect ion the criossed-checks.
'Having accepted the criossed checks
friom persions iother than the payees,
the defendant is guilty iof negligence;
the risk iof wriongful payment has tio
be assumed by the
defendant."(Eephasis smpplied, at pp.
198o202).
As can be gleaned fruoe the decision, one of the eain
consideruations in affirueing the PCHC's decision as the
fnding that as bet een the drua ee bank (Eqmitable
Bank) and the ruepruesenting oru collecting bank (Banco de
Oruo) the lateru as negligent and thms ruesponsible foru
mndme payeent.
KIMBUTAO NEGO SYLaLaABUS
97
Paruenthetically, petitioneru BPI's theoruy that the pruesent
clearuing gmaruantee rueqmirueeent ieposed on the
ruepruesenting oru collecting bank mnderu the PCHC rumles
and ruegmlations is independent of the Negotiable
Instrumeents Laa is not in oruderu.
Anotheru rueason hy the petitioneru's theoruy is mncalled
foru is the fact that the Negotiable Instrumeents Laa (Act
No. 2031) applies to negotiable instrumeents as defned
mnderu section one therueof. Undeniably, the pruesent
case inviolvies checks as defned by and mnderu the
covieruage of the Negotiable Instrumeents Laa . To affirue
the theoruy of the petitioneru omld, therueforue, viiolate
the rumle that rumles and ruegmlations iepleeenting the
la shomld conforue to the la , otheru ise the rumles and
ruegmlations arue nmll and vioid. Thms, e held in Shell
Philippines, Inc. v. Central Bank iof the Philippines (162
SCRA 628 [1988]):
". . . hile it is trume that mnderu the
saee la the Centrual Bank as givien
the amthoruity to pruoemlgate rumles and
ruegmlations to iepleeent the
statmtoruy pruoviision in qmestion, e
rueiteruate the pruinciple that this
amthoruity is lieited only to caruruying
into eiect hat the la being
iepleeented pruoviides.
"In People vi. Maceruen (79 SCRA 450,
458 and 460), this Comrut rumled that:
Adeinistruativie ruegmlations adopted
mnderu legislativie amthoruity by a
paruticmlaru deparuteent emst be in
harueony ith the pruoviisions of the
la , and shomld be foru the sole
pmrupose of caruruying into eiect its
generual pruoviisions. By smch
ruegmlations, of comruse, the la itself
cannot be extended. (U.S. vi. Tmpasi
Molina, supra). An adeinistruativie
agency cannot aeend an act of
Congruess (Santos vi. Estenzo, 109 Phil.
419, 422; Teoxon vi. Meeberus of the
Boarud of Adeinistruatorus, Lao25619,
Jmne 30, 1970, 33 SCRA 585; Manmel
vi. Generual Amditing Office, Lao28952,
Deceeberu 29, 1971, 42 SCRA 660;
Delmao vi. Casteel, Lao21906, Amgmst 29,
1969, 29 SCRA 350).
ATTY. CLaAROS

The rumleoeaking po eru emst be
confned to details foru ruegmlating the
eode oru pruoceeding to caruruy into
eiect the la as it has been enacted.
The po eru cannot be extended to
aeending oru expanding the statmtoruy
rueqmirueeents oru to eebruace eaterus
not covierued by the statmte. Rmles that
smbvierut the statmte cannot be
sanctioned. (Univierusity of Santo
Toeas vi. Boarud of Tax Appeals, 93
Phil. 376, 382, citing 12 C.J. 845o46. As
to invialid ruegmlations, see Collectoru of
Interunal Revienme vi. Villaforu, 69 Phil.
319; Wise & Co vi. Meeru, 78 Phil. 655,
676, Del Maru vi. Phil. Veteruans
Adeinistruation, Lao27299, Jmne 27,
1973, 51 SCRA 340, 349).
xxx xxx xxx
". . . The rumle oru ruegmlation shomld be
ithin the scope of the statmtoruy
amthoruity gruanted by the legislatmrue to
the adeinistruativie agency (Daviis,
Adeinistruativie Laa , p. 194, 197, cited
in Victoruias Milling Co., Inc. vi. Social
Secmruity Coeeission, 114 Phil. 555,
558).
In case of discruepancy bet een the
basic la and a rumle oru ruegmlation
issmed to iepleeent said la the
basic la prueviails becamse said rumle oru
ruegmlation cannot go beyond the
terues and pruoviisions of the basic la
(People vi. Laie, 108 Phil. 1091)." (at
pp. 633o634).
Section 23 of the Negotiable Instrumeents Laa states:
"When a signatmrue is foruged oru eade
ithomt the amthoruity of the peruson
hose signatmrue it pmruporuts to be, it is
holly inoperuativie and no ruight to
ruetain the instrumeent, oru to givie
discharuge therueforue, oru to enforuce
payeent therueof, against any paruty
therueto, can be acqmirued thruomgh oru
mnderu smch foruged signatmrue, mnless
the paruty against hoe it is somght to
enforuce smch ruight is prueclmded fruoe
KIMBUTAO NEGO SYLaLaABUS
98
seing mp the forugeruy oru ant of
amthoruity."
Therue arue t o (2) paruts of the pruoviision. The frust parut
states the generual rumle hile the second parut states the
exception to the generual rumle. The generual rumle is to the
eiect that a foruged signatmrue is " holly inoperuativie",
and payeent eade "thruomgh oru mnderu smch signatmrue" is
ineiectmal oru does not discharuge the instrumeent. The
exception to this rumle is hen the paruty ruelying on the
forugeruy is "prueclmded fruoe seing mp the forugeruy oru
ant of amthoruity." In this jmruisdiction e
ruecognize negligence iof the party invioking forugeruy as an
exception to the generual rumle. (See Banco de Oruo
Saviings and Morutgage Bank vi. Eqmitable Banking
Coruporuation supra; Philippine National Bank vi. Qmiepo,
158 SCRA 582 [1988]; Philippine National Bank vi. Comrut
of Appeals, 25 SCRA 693 [1968]; Repmblic vi. Eqmitable
Banking Coruporuation, 10 SCRA 8 [1964]; National Bank vi.
National City Bank of Ne Yoruk, 63 Phil. 711 [1936]; San
Carulos Milling Co. vi. Bank of P.I., 59 Phil. 59 [1933]). In
these cases e deterueined the ruights and liabilities of
the paruties mnderu a foruged endoruseeent by looking at
the legal eiects of the ruelativie negligence of the paruties
therueto.
In the pruesent petition the payee's naees in the t o (2)
smbject checks erue foruged. Follo ing the generual rumle,
the checks arue " holly inoperuativie" and of no eiect.
Ho evieru, the mnderulying cirucmestances of the case
sho that the generual rumle on forugeruy is not applicable.
The issme as to ho bet een the paruties shomld bearu
the loss in the payeent of the foruged checks
necessitates the deterueination of the ruights and
liabilities of the paruties inviolvied in the contruovierusy in
ruelation to the foruged checks.
The ruecoruds sho that petitioneru BPI as drua ee bank
and ruespondent CBC as ruepruesenting oru collecting bank
erue both negligent ruesmlting in the encasheent of the
foruged checks.
The Arubitruation Coeeitee in its decision analyzed the
negligence of the eeployees of petitioneru BPI inviolvied
in the pruocessing of the prueoterueination of Eligia G.
Ferunando's eoney earuket placeeent and in the
issmance and delivieruy of the smbject checks in this ise:
"a) The iepostoru comld havie been
rueadily mneasked by a eerue
telephone call, hich nobody in BPI
botherued to eake to Eligia G.
ATTY. CLaAROS
 99

Ferunando, a viiceopruesident of Philaelife, this clevieru rumse emst havie

Philaelife (Annex C, p. 13). pmt oi gmarud the eeployee prueparuing
the 'pmruchase oruderu slip', enomgh at
b) It is ruatheru cmruioms, too, that the
least foru hie to do a ay ith haviing
officeru ho msed to handle Eligia G.
to call Eligia G. Ferunando at heru office
Ferunando's accomnt did not do
(Annex C at p. 17)
anything abomt the accomnt's prueo
terueination (Ibid, p. 13). b) We also do not think it mnmsmal
that Penelope Bmlan, ho msed to
c) Again no vieruifcation appearus to
handle Eligia G. Ferunando's accomnt,
havie been eade by (sic) Eligia G.
shomld do nothing abomt the rueqmest
Ferunando's pmruporuted signatmrue on
foru prueterueination and leavie it to
the leteru rueqmesting the prueo
Emstaqmio to pruocess the
terueination and the leteru amthoruizing
prueterueination In a bank the size of
heru niece to pickomp the checks, yet,
BPI, it omld be qmite norueal foru an
heru signatmrue as in BPI's fle (Ibid , p.
officeru to take ovieru fruoe anotheru the
13).
handling of an accomnt. (Ibid, p. 17)
d) Anotheru step that comld havie foiled
c) The failmrue to vieruify oru coeparue
the fruamd, bmt hich BPI neglected to
Eligia G. Ferunando's pmruporuted
take, as rueqmiruing beforue the t o
signatmrue on the leteru rueqmesting the
checks in contruovierusy erue delivierued,
prueterueination and the leteru
the smruruenderu of the pruoeissoruy note
amthoruizing the pickomp of the checks
eviidencing the eoney earuket
in contruovierusy ith heru signatmrue in
placeeent that as smpposedly
BPI's fle sho ed lack of carue and
prueterueinated." (Rollo, p. 13)
prumdence rueqmirued by the
The Arubitruation Coeeitee, ho evieru, belitled cirucmestances, althomgh it is dombtml
petitioneru BPI's negligence coeparued to that of that smch coeparuison omld havie
ruespondent CBC hich it declarued as gruavieru and the disclosed the deception consideruing
pruoxieate camse of the loss of the smbject checks to the the 'close sieilaruity' bet een heru
iepostoru ho ieperusonated Eligia G. Ferunando. pmruporuted signatmrue and heru
Petitioneru BPI no insists on the adoption of the signatmrue in BPI's fle. (Ibid., p. 17)
Arubitruation Coeeitee's evialmation of the negligence of
both paruties, to it:
d) A signifcant lapse as, ho evieru,
"a) Bmt hat abomt the lapses of BPI's
coeeited hen the t o checks in
eeployees ho pruocessed the
contruovierusy erue delivierued ithomt
prueterueination of Eligia G. Ferunando's
rueqmiruing the smruruenderu of the
placeeent and issmed the checks? We
pruoeissoruy note eviidencing the
do not think it as a seruioms lapse not
placeeent that as smpposedly
to confrue the telephone rueqmest foru
prueterueinated. Althomgh, as e
prueterueination pmruporutedly eade by
alrueady said, it is harud to deterueine
Eligia G. Ferunando, consideruing that it
hetheru the failmrue to rueqmirue the
is coeeon kno ledge that bmsiness
smruruenderu of the pruoeissoruy note as
in the eoney earuket is done eostly
a deliberuate act of Laaderuas, the
by telephone. Then, too, the initial
dispatcheru, oru sieply becamse the
rueqmest of the calleru as foru the t o
'pmruchase oruderu slip' note, (sic) the
checks ruepruesenting the
fact rueeains that smch failmrue
prueterueination pruoceeds to be
contruibmted to the consmeeation of
delivierued to 'heru' office, eeaning
the fruamd. (Ibid., pp. 17o18)
Eligia G. Ferunando's office at

KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS


The Arubitruation Coeeitee Decision's
conclmsion as expruessed thms —
'Except foru Laaderuas,
not one of the BPI perusonnel
tasked ith the
prueterueination of Eligia G.
Ferunando's placeeent and
the issmance of the
prueterueination checks
collmded in the fruamd,
althomgh therue eay havie
been lapses of negligence on
theiru parut hich e shall
discmss lateru. The secrueting
omt of BPI of Ferunando's
specieen signatmrue, hich, as
adeited by the iepostoru
heruself (Exhibit Eo2; page 5),
helped heru in foruging
Ferunando's signatmrue as no
dombt, an 'inside job' bmt
done by any of the fomru
eeployees collmding in the
fruamd, not by the perusonnel
diruectly charuged ith the
cmstody of Ferunando's
ruecoruds.' (Annex C, p. 15)
With ruespect to the negligence of the
CBC eeployees in the payeent of the
t o (2) BPI cashieru's checks inviolvied
in this case, the Arubitruation
Coeeitee's Decision eade
incontruovierutible fndings undisputed
in the statement iof facts fiound in the
Ciourt iof Appeals' decisiion iof 8 August
1991, the Regiional Trial Ciourt
decisiion iof 28 Niovember 1990 and
the PCHC Bioard iof Directiors' Order iof
26 August 1986 (Annexes A, E, D,
ruespectiviely). These fndings point to
negligence of the CBC eeployees
hich led to: (a) the opening of the
iepostoru's cmruruent accomnt in the
naee of Eligia G. Ferunando; (b) the
deposit to said accomnt of the t o (2)
checks in contruovierusy and (c) the
ithdrua al of theiru pruoceeds fruoe
said accomnt.
KIMBUTAO NEGO SYLaLaABUS
100
The Arubitruation Coeeitee fomnd that
—
1. Since the iepostoru
pruesented only heru tax
accomnt nmeberu as a eeans
of identifcation, e feel that
Eeily Sylianco Cmaso, Cash
Smperuviisoru, appruovied the
opening of heru cmruruent
accomnt in the naee of Eligia
G. Ferunando on the struength
of the intruodmction of Antonio
Concepcion ho had hieself
opened an accomnt earulieru
that yearu. That Mrus. Cmaso
as not coeforutable ith the
intruodmction of Antonio
Concepcion ho had hieself
opened an accomnt earulieru
that yearu. That Mrus. Cmaso
as not coeforutable ith the
intruodmction of the ne
depositoru by Concepcion is
betruayed by the fact that she
eade it appearu in the
application forue that the ne
depositoru as intruodmced by
Valentin Co a longostanding
vialmed client of CBC, ho had
intruodmced Concepcion hen
he opened his accomnt. We
fnd this eisruepruesentation
signifcant becamse hen she
rueviie ed the application
fruoe she assmeed that the
ne client as intruodmced by
Valentin Co as indicated in
the application forue (tsn of
Maruch 19, 1985, page 13).
Thms e fnd that the
iepostoru as able to open
ith CBC's cmruruent accomnt in
the naee of Eligia G.
Ferunando dme to the
negligence, if not
eisruepruesentation, of its Cash
Smperuviisoru, (Annex C, p. 18).
2. Evien ith
negligence atending the
ATTY. CLaAROS

iepostoru's opening of a
cmruruent accomnt, heru
encasheent of the t o
checks in contruovierusy comld
still havie been prueviented if
only the carue and diligence
deeanded by the
cirucmestances erue
exerucised. On Octoberu 14,
1981, jmst a day afteru she
opened heru accomnt, the
iepostoru deposited the t o
checks hich had an
aggruegate vialme of
P2,413,215.16, hich as
gruossly dispruoporutionate to
heru initial deposit of P10,000.
The vieruy date of both checks,
Octoberu 12, 1981, shomld
havie tipped oi the rueal
pmrupose of the opening of the
accomnt on Octoberu 13, 1981.
Bmt hat smruely can be
charuacteruized only as
abandoneent of camtion as
allo ing the ithdrua al of
the checks' pruoceeds hich
staruted on Octoberu 16, 1981
only t o days afteru the t o
checks erue deposited; by
Octoberu 22, 1981, the
accomnt had been eeptied of
the checks' pruoceeds. (Annex
C, p. 19).
3. We can not accept
CBC's contention that 'big
ithdrua als' arue 'msmal
bmsiness' ith it. Hmge
ithdrua als eight be a
eateru of comruse ith an
established accomnt bmt not
foru a ne ly opened accomnt,
especially since the smpposed
check pruoceeds being
ithdrua n erue gruossly
dispruoporutionate to the initial
cash deposit.' (Annex C, p. 19)
As intieated earulieru, the foruegoing
fndings of fact erue not eateruially
KIMBUTAO NEGO SYLaLaABUS
101
dispmted eitheru by the ruespondent
PCHC Boarud of Diruectorus oru by the
ruespondent comruts (coeparue
stateeent of facts of ruespondent
comrut as ruepruodmced in pp. 9o11 of
this petition).
Haviing seen the negligence of the
eeployees of both Banks, the
rueleviant qmestion is: hich negligence
as graver. The Arubitruation
Coeeitee's Decision fomnd and
conclmded thms —
'Since therue erue
lapses by both BPI and CBC,
the qmestion is: hose
negligence as the gruavieru
and hich as the pruoxieate
camse of the loss? Evien
viie ing BPI's lapses in the
orust light, it can be said that
hile its negligence eay havie
intruodmced the t o checks in
contruovierusy into the
coeeerucial strueae, CBC's
lack of carue in appruoviing the
opening ith it of the
iepostoru's cmruruent accomnt,
and its allo ing the
ithdrua als of the checks'
pruoceeds, the aggruegate vialme
of hich as gruossly
dispruoporutionate to the initial
cash deposit, so soon afteru
smch checks erue deposited,
camsed the 'payeent' of the
checks. Being closest to the
evient of loss, therueforue, CBC's
negligence emst be held to be
the pruoxieate camse of the
loss.'" (Annex C, pp. 19o20)
(Rollo, pp. 38o41)
While it is trume that the PCHC Boarud of Diruectorus, and
the lo eru comruts did not dispmte the fndings of facts of
the Arubitruation Coeeitee, the PCHC Boarud of Diruectorus
evialmated the negligence of the paruties, to it:
"The Boarud fnds the rumling that the
negligence of the eeployees of CBC is
ATTY. CLaAROS

gruavieru than that of the BPI not
aruruanted by the facts becamse:
1. The acts and oeissions of hich
BPI eeployees arue gmilty arue not only
negligent bmt cruieinal as fomnd by the
decision.
2. The act of BPI's dealeruotruainee
Emstaqmio of disclosing inforueation
abomt the eoney earuket placeeent
of its client ovieru the telephone is a
viiolation, if not ofRepmblic Act 1405.
of Sec. 87 (a) of the Generual Banking
Act hich penalizes any officeru
eeployee oru agent of any banking
institmtion ho discloses to any
mnamthoruized peruson any inforueation
ruelativie to the fmnds oru pruoperuties in
the cmstody of the bank belonging to
pruiviate indiviidmal, coruporuations. oru
any otheru entity; and the bland
excmse givien by the decision that
'bmsiness in the eoney earuket is
done eostly by the telephone' cannot
be accepted noru toleruated foru it is an
eleeentaruy rumle of la that no
cmstoe oru msage of bmsiness can
ovieruruide hat a la specifcally
pruoviides. (Ang Tek Laian vi. CA, 87 Phil.
383).
3. The failmrue of BPI eeployees to
vieruify oru coeparue Eligia G. Ferunando's
pmruporuted signatmrue on the leteru
rueqmesting foru prueoterueination and
the leteru amthoruizing the pickomp of
the checks in contruovierusy ith the
signatmrues on fle is not evien jmstifed
bmt adeited in the decision as
sho ing lack of carue and prumdence
rueqmirued by the cirucmestances. The
conjectmrual excmse eade in the
decision that 'it is dombtml that smch
coeparuison omld havie discliosed the
deception' does not givie an excmse
foru the oeission by BPI eeployees of
the act of vieruifying the signatmrue,a
dmty hich is the basic rueqmirueeent
of all acts in the bank. Fruoe the vieruy
frust tiee an eeployee enterus the
KIMBUTAO NEGO SYLaLaABUS
102
seruviices of a bank mp to the tiee he
becoees the highest officeru therueof,
the camtionaruy rumle is druilled on hie to
al ays be smrue that hen he acts on
the basis of any signatmrue pruesented
beforue hie, the signatmrue is to be
vieruifed as genmine and that if the
bank acts on the basis of a forugeruy of
smch signatmrue, the bank ill be held
liable. Therue can be no excmse
therueforue foru smch an oeission on the
parut of BPI eeployees.
4. The decision adeits that:
'A signifcant lapse
as, ho evieru, coeeited
hen the t o checks in
contruovierusy erue delivierued
ithomt rueqmiruing the
smruruenderu of the pruoeissoruy
note eviidencing the
placeeent that as
smpposedly prueterueinated.'
This oeission of the BPI to rueqmirue the
smruruenderu of the pruoeissoruy notes
eviidencing the placeeent is jmstifed
by the decision by saying that Sec 74
of the Negotiable Instrumeents Laa is
not viiolated by this oeission of the
BPI eeployees becamse said pruoviision
is intended foru the beneft of the
peruson paying (in this case the BPI) so
that since the oeission to smruruenderu
haviing been aivied by BPI, so the
nonosmruruenderu does not invialidate the
payeent. The fallacy of this arugmeent
is that the issme in this case is:
hetheru oru not smch nonosmruruenderu is
a necessaruy ingruedient in the camse of
the smccess of the fruamd and not
hetheru oru not the payeent as
vialid. This excmse eay peruhaps be
acceptable if the oeission did not
camse daeage to any otheru peruson. In
this case, ho evieru, it did camse
trueeendoms daeage. Morueovieru, this
stateeent obviiomsly ovierulooks the
pruoviision in Arut 1240 of the Civiil Code
rueqmiruing the payoru ( hich in this case
ATTY. CLaAROS

is the BPI) to be smrue he pays to the
ruight peruson and as Arut 1242 states,
he can claie good faith in paying to
the ruight peruson only if he pays to the
peruson in possession of the cruedit
( hich in this case is the pruoeissoruy
note eviidencing the eoney earuket
placeeent). Clearuly therueforue, the
excmse givien in the decision foru the
nonosmruruenderu of this pruoeissoruy note
eviidencing the eoney earuket
placeeent cannot be accepted.
xxx xxx xxx
"The decision, ho evieru, discmsses in
detail the negligent acts of the CBC in
its lapses oru cerutain rueqmirueeents in
the opening of the accomnt and in
allo ing ithdrua als against the
deposited checks soon afteru the
deposit therueof. As stated by the
decision ho evieru, in coepmteruized
banks the historuy of the accomnt is
not sho n in the coepmteru terueinal
henevieru a ithdrua al is eade.
The Boarud therueforue believies that
these ithdrua als, ithomt any
fmrutheru sho ing that the CBC
eeployees 'had actmal kno ledge of
the infrueity oru defect, oru kno ledge
of smch facts' (Sec. 56, Negotiable
Instrumeents Laa ) that theiru action in
accepting theiru checks foru deposit and
allo ing the ithdrua als against the
saee 'aeomnted to bad faith' cannot
be considerued as basis foru holding
CBC liable." (Rollo, pp. 107o111)
Banks handle daily truansactions inviolviing eillions of
pesos. By the vieruy natmrue of theiru oruk the degruee
of ruesponsibility, carue and trumst oruthiness expected
of theiru eeployees and officials is faru grueateru than
those of orudinaruy cleruks and eeployees. Foru obviioms
rueasons, the banks arue expected to exerucise the
highest degruee of diligence in the selection and
smperuviision of theiru eeployees.
In the pruesent case, therue is no qmestion that the banks
erue negligent in the selection and smperuviision of theiru
KIMBUTAO NEGO SYLaLaABUS
103
eeployees. The Arubitruation Coeeitee, the PCHC Boarud
of Diruectorus and the lo eru comruts, ho evieru disagruee in
the evialmation of the degruee of negligence of the banks.
While the Arubitruation Coeeitee declarued the
negligence of ruespondent CBC gruavieru, the PCHC Boarud
of Diruectorus and the lo eru comruts declarued that
petitioneru BPI's negligence as gruavieru. To the extent
that the degruee of negligence is eqmated to the
pruoxieate camse of the loss, e rumle that the issme as to
hose negligence is gruavieru is rueleviant. No eateru ho
eany jmstifcations both banks pruesent to avioid
ruesponsibility, they cannot eruase the fact that they erue
both gmilty in not exerucising extruaorudinaruy diligence in
the selection and smperuviision of theiru eeployees. The
next issme hinges on hose negligence as the
pruoxieate camse of the payeent of the foruged checks by
an iepostoru.
Petitioneru BPI accmses the Comrut of Appeals of
inconsistency hen it affirueed the PCHC's Boarud of
Diruectorus' Oruderu bmt in the saee brueath declarued that
the negligent acts of the CBC eeployees occmrurued
ieeediately beforue the actmal loss.
In this ruegarud petitioneru BPI insists that the doctruine of
last clearu chance enmnciated in the case of Picart v.
Smith (37 Phil. 809 [1918]) shomld havie been applied
consideruing the cirucmestances of the case.
In the Picart case, Aeado Picarut as then ruiding on his
pony ovieru the Carulatan Bruidge at San Ferunando, Laa
Union hen Fruank Seith appruoached fruoe the opposite
diruection in a caru. As Seith nearued the bruidge he sa
Picarut and ble his horun to givie aruning of his
appruoach. When he as alrueady on the bruidge Picarut
gavie t o eorue smccessivie blasts as it appearued to hie
that Picarut as not obseruviing the rumle of the ruoad Picarut
sa the caru coeing and hearud the aruning signals. An
accident then ensmed ruesmlting in the death of the horuse
and physical injmruies smierued by Picarut hich camsed
hie teeporuaruy mnconsciomsness and rueqmirued eedical
atention foru sevierual days. Therueafteru, Picarut smed Seith
foru daeages.
We rumled:
"The qmestion pruesented foru decision
is hetheru oru not the defendant in
eanemvieruing his caru in the eanneru
abovie descruibed as gmilty of
negligence smch as givies ruise to a civiil
obligation to ruepairu the daeage done;
ATTY. CLaAROS

and e arue of the opinion that he is
so liable. As the defendant staruted
acruoss the bruidge, he had the ruight to
assmee that the horuse and ruideru
omld pass ovieru to the pruoperu side;
bmt as he eovied to arud the centeru of
the bruidge it as deeonstruated to his
eyes that this omld not be done, and
he emst in a eoeent havie peruceivied
that it as too late foru the horuse to
cruoss ith safety in fruont of the
eoviing viehicle. In the nature iof
things this change iof situation
ioccurred while the autiomiobile was
yet siome distance away; and friom
this mioment it was nio lionger within
the piower iof the plainti tio escape
being run diown by gioing tio a place iof
greater safety. The ciontriol iof the
situation had then passed entrely tio
the defendant; and it was his duty tio
either tio bring his car tio an
immediate stiop ior, seeing that there
were nio iother persions ion the bridge,
tio take the iother side and pass
sufciently far away friom the hiorse tio
avioid the danger iof ciollisiion. Instead
of doing this, the defendant ruan
struaight on mntil he as aleost mpon
the horuse. He as, e think, deceivied
into doing this by the fact that the
horuse had not yet exhibited fruight. Bmt
in viie of the kno n natmrue of
horuses, therue as an apprueciable ruisk
that, if the anieal in qmestion as
mnacqmainted ith amtoeobiles, he
eight get excited and jmep mnderu the
conditions hich herue confruonted
hie. When the defendant exposed
the horuse and ruideru to this dangeru he
as, in omru opinion, negligent in the
eyes of the la .
The test by hich to deterueine the
existence of negligence in a paruticmlaru
case eay be stated as follo s: Did the
defendant in doing the alleged
negligent act mse that rueasonable carue
and camtion hich an orudinaruily
prumdent peruson omld havie msed in
KIMBUTAO NEGO SYLaLaABUS
104
the saee sitmation? If not, then he is
gmilty of negligence.
xxx xxx xxx
It goes ithomt saying that the
plaintii hieself as not fruee fruoe
famlt, foru he as gmilty of antecedent
negligence in planting hieself on the
ruong side of the ruoad. Bmt as e
havie alrueady stated, the defendant
as also negligent; and in smch case
the pruoblee al ays is to discovieru
hich agent is ieeediately and
diruectly ruesponsible. It ill be noted
that the negligent acts of the t o
paruties erue not conteeporuaneoms,
since the negligence of the defendant
smcceeded the negligence of the
plaintii by an apprueciable interuvial.
Underu these cirucmestances the la is
that the peruson ho has the last fairu
chance to avioid the iepending harue
and fails to do so is charugeable ith
the conseqmences, ithomt rueferuence
to the pruioru negligence of the otheru
paruty."
Applying these pruinciples, petitioneru BPI's rueliance on
the doctruine of last clearu chance to clearu it fruoe liability
is not ellotaken. CBC had no priior niotce of the fruamd
perupetruated by BPI's eeployees on the prueterueination
of Eligia G. Ferunando's eoney earuket placeeent.
Morueovieru, Ferunando is not a depositoru of CBC. Hence, a
coeparuison of the signatmrue of Eligia G. Ferunando ith
that of the iepostoru Eligia G. Ferunando, hich
ruespondent CBC did, comld not havie ruesmlted in the
discovieruy of the fruamd. Hence, mnlike in the Picarut case
heruein the defendant, had he msed rueasonable carue
and camtion, omld havie ruecognized the ruisk he as
taking and omld havie forueseen harue to the horuse and
the plaintii bmt did not, ruespondent CBC had no ay to
discovieru the fruamd at all. In fact the ruecoruds fail to sho
that ruespondent CBC had kno ledge, actmal oru ieplied,
of the fruamd perupetruated by the iepostoru and the
eeployees of BPI.
Ho evieru, petitioneru BPI insists that evien if the doctruine
of pruoxieate camse is applied, still, ruespondent CBC
shomld be held ruesponsible foru the payeent to the
iepostoru of the t o (2) checks. It arugmes that the acts
and oeissions of ruespondent CBC arue the camse "that
ATTY. CLaAROS
 105

set into eotion the actual and ciontnuious seqmence of Comrut of Firust Instance of Caviite. The truial comrut rumled in
evients that pruodmced the injmruy and withiout which the favioru of the defendant. Ho evieru, e ruevierused and set
result wiould niot have ioccurred." On the otheru hand, it aside the truial comrut's decision and said:
asseruts that its acts and oeissions did not end in a loss.
"Therue is no qmestion that mnderu the
Petitioneru BPI anchorus its arugmeent on its stance that
cirucmestances, the defendant caruruieru
therue as "a gap, a hiatms, an interuvial bet een the
is liable. The only qmestion is to hat
issmance and delivieruy of said checks by petitioneru BPI to
degruee. The truial comrut as of the
the iepostoru and theiru actmal payeent of CBC to the
opinion that the pruoxieate camse of
iepostoru. Petitioneru BPI points omt that the gap of one
the death of Bataclan as not the
(1) day that elapsed fruoe its issmance and delivieruy of
ovierutmruning of the bms, bmt ruatheru the
the checks to the iepostoru is eateruial on the issme of
frue that bmruned the bms, inclmding
pruoxieate camse. At this stage, accoruding to petitioneru
hieself and his coopassengerus ho
BPI, therue as yet no loss and the iepostoru comld havie
erue mnable to leavie it; that at the
decided to desist fruoe coepleting the saee plan and
tiee the frue staruted, Bataclan, thomgh
comld havie held to the checks ithomt negotiating
he emst havie smierued physical
thee.
injmruies, peruhaps seruioms, as still
We arue not perusmaded. alivie and so daeages erue a aruded,
not foru his death, bmt foru the physical
In the case of Vda. de Bataclan, et al. v. Medina (102
injmruies smierued by hie. We disagruee.
Phil. 181 [1957]), e had occasion to discmss the
A satisfactoruy defnition of pruoxieate
doctruine of pruoxieate camse.
camse is fomnd in Volmee 38, pages
Bruiefy, the facts of this case arue as follo s: 695o696 of Aeeruican Jmruisprumdence,
cited by plaintiisoappellants in theiru
At abomt 2:00 o'clock in the eoruning of Septeeberu 13, bruief. It is as follo s:
1952 a bms caruruying abomt eighteen (18) passengerus on
its ay to Aeadeo, Caviite fgmrued in an accident. While
the bms as rumnning, one of the fruont tirues bmrust and the
'. . . that camse,
bms began to zigzag mntil it fell into a canal on the ruight
hich, in natmrual and
side of the ruoad and tmruned tmrutle. Soee passengerus
continmoms seqmence,
eanaged to get omt fruoe the ovierutmruned bms except foru
mnbruoken by any efficient
fomru (4) passengerus, aeong thee, Bataclan. The
interuviening camse, pruodmces
passengerus ho got omt hearud shomts foru help fruoe
the injmruy, and ithomt hich
Bataclan and anotheru passengeru Laarua ho said they
the ruesmlt omld not havie
comld not get omt fruoe the bms. Afteru half an homru,
occmrurued. And eorue
abomt ten een caee, one of thee caruruying a lighted
coepruehensiviely, 'the
toruch eade of baeboo ith a ick on one end fmeled
pruoxieate legal camse is that
ith petruoleme. These een appruoached the ovierutmruned
acting frust and pruodmcing the
bms, and aleost ieeediately, a feruce frue staruted
injmruy, eitheru ieeediately oru
bmruning and all bmt consmeing the bms inclmding the
by seing otheru evients in
fomru (4) passengerus truapped inside. It tmruned omt that as
eotion, all constitmting a
the bms ovierutmruned, gasoline began to leak and escape
natmrual and continmoms chain
fruoe the gasoline tank on the side of the chassis
of evients, each haviing a close
sprueading ovieru and perueeating the body of the bms and
camsal connection ith its
the gruomnd mnderu and aruomnd it. The lighted toruch
ieeediate pruedecessoru, the
bruomght by one of the een ho ans erued the call foru
fnal evient in the chain
help set it on frue. On the saee day, the charurued bodies
ieeediately eiecting the
of the truapped passengerus erue rueeovied and identifed.
injmruy as natmrual and pruobable
By rueason of his death, Jman Bataclan's ife and heru
ruesmlt of the camse hich frust
childruen fled a smit foru daeages against Maxieo
acted, mnderu smch
Medina, the operuatoru and o neru of the bms in the then
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

cirucmestances that the
peruson ruesponsible foru the
frust evient shomld, as an
orudinaruily prumdent and
intelligent peruson, havie
rueasonable gruomnd to expect
at the eoeent of his act oru
defamlt that an injmruy to soee
peruson eight pruobably ruesmlt
theruefruoe.'
It eay be that orudinaruily, hen a
passengeru bms ovierutmruns, and pins
do n a passengeru, eeruely camsing
hie physical injmruies, if thruomgh soee
evient, mnexpected and extruaorudinaruy,
the ovierutmruned bms is set on frue, say,
by lightning, oru if soee high ayeen
afteru looting the viehicle sets it on frue,
and the passengeru is bmruned to death,
one eight still contend that the
pruoxieate camse of his death as the
frue and not the ovierutmruning of the
viehicle. But in the present case and
under the circumstances iobtaining in
the same, we dio niot hesitate tio hiold
that the prioximate cause iof the death
iof Bataclan was the ioverturning iof
the bus, this fior the reasion that when
the vehicle turned niot ionly ion its side
but ciompletely ion its back, the
leaking iof the gasioline friom the tank
was niot unnatural ior
unexpected; that the coeing of the
een ith a lighted toruch as in
ruesponse to the call foru help, eade
not only by the passengerus, bmt eost
pruobably, by the druivieru and the
condmctoru theeselvies, and that
becamse it as vieruy daruk (abomt 2:30
in the eoruning), the ruescmerus had to
caruruy a light ith thee; and coeing as
they did fruoe a rumrual aruea herue
lanteruns and fashlights erue not
aviailable, they had to mse a toruch, the
eost handy and aviailable; and hat
as eorue natmrual than that said
ruescmerus shomld innocently appruoach
the ovierutmruned viehicle to extend the
aid and eiect the ruescme rueqmested
KIMBUTAO NEGO SYLaLaABUS
106
fruoe thee. In iother wiords, the
cioming iof the men with the tiorch was
tio be expected and was natural
sequence iof the ioverturning iof the
bus, the trapping iof siome iof its
passengers bus, the trapping iof siome
iof its passengers and the call fior
ioutside help." (Eephasis smpplied, at
pp. 185o187)
Again, applying the doctruine of pruoxieate camse,
petitioneru BPI's contention that CBC alone shomld bearu
the loss emst fail. The gap of one (1) day bet een the
issmance and delivieruy of the checks bearuing the
iepostoru's naee as payee and the iepostoru's
negotiating the said foruged checks by opening an
accomnt and depositing the saee ith ruespondent CBC
is not contruolling. It is not unnatural oru unexpected that
afteru taking the ruisk of ieperusonating Eligia G. Ferunando
ith the conniviance of BPI's eeployees, the iepostoru
omld coeplete heru deception by encashing the foruged
checks. Therue is, therueforue, grueateru rueason to rumle that
the pruoxieate camse of the payeent of the foruged
checks by an iepostoru as dme to the negligence of
petitioneru BPI. This fnding, not ithstanding, e arue not
inclined to rumle that petitioneru BPI emst siolely bearu the
loss of P2,413,215.16, the total aeomnt of the t o (2)
foruged checks. Dme carue on the parut of CBC comld havie
prueviented any loss.
The Comrut cannot ignorue the fact that the CBC
eeployees closed theiru eyes to the smspicioms
cirucmestances of hmge ovieruotheocomnteru ithdrua als
eade ieeediately afteru the accomnt as opened. The
opening of the accomnt itself as accoepanied by
inexplicable acts clearuly sho ing negligence. And hile
e do not apply the last clearu chance doctruine as
contruolling in this case, still the CBC eeployees had
aeple opporutmnity to avioid the harue hich befell both
CBC and BPI. They let the opporutmnity slip by hen the
orudinaruy prumdence expected of bank eeployees omld
havie smfficed to seize it.
Both banks erue negligent in the selection and
smperuviision of theiru eeployees ruesmlting in the
encasheent of the foruged checks by an iepostoru. Both
banks erue not able to ovierucoee, the pruesmeption of
negligence in the selection and smperuviision of theiru
eeployees. It as the gruoss negligence of the
eeployees of both banks hich ruesmlted in the fruamd
and the smbseqment loss. While it is trume that petitioneru
ATTY. CLaAROS

BPI's negligence eay havie been the pruoxieate camse of
the loss, ruespondent CBC's
negligence ciontributed eqmally to the smccess of the
iepostoru in encashing the pruoceeds of the foruged
checks. Underu these cirucmestances, e apply Aruticle
2179 of the Civiil Code to the eiect that hile
ruespondent CBC eay ruecovieru its losses, smch losses arue
smbject to eitigation by the comruts (See Phoenix
Construmction, Inc. vi. Interueediate Appellate Comrut, 148
SCRA 353 [1987]).
Consideruing the coeparuativie negligence of the t o (2)
banks, e rumle that the deeands of smbstantial jmstice
arue satisfed by allocating the loss of P2,413,215.16 and
the costs of the arubitruation pruoceedings in the aeomnt
of P7,250.00 and the costs of litigation on a 60o40 ruatio.
Conforueably ith this rumling, no interuests and atoruney's
fees can be a aruded to eitheru of the paruties.
WHEREFORE, the qmestioned DECISION and
RESOLaUTION of the Comrut of Appeals arue MODIFIED as
omtlined abovie. Petitioneru Bank of the Philippine Islands
shall be ruesponsible foru sixty perucent (60%) hile
ruespondent China Banking Coruporuation shall sharue foruty
perucent (40%) of the loss of TWO MILaLaION FOUR
HUNDRED THIRTEEN THOUSAND, TWO HUNDRED
FIFTEEN PESOS and SIXTEEN CENTAVOS (P2,413,215.16)
and the arubitruation costs of SEVEN THOUSAND, TWO
HUNDRED FIFTY PESOS (P7,250.00). The Philippine
Clearuing Homse Coruporuation is herueby diruected to eiect
the coruruesponding entruies to the banks' clearuing
accomnts in accorudance ith this decision. Costs in the
saee pruoporution against the Bank of the Philippine
Islands and the China Banking Coruporuation.
SO ORDERED.
5. ALLIED BANKING
CORPORATION, pettioner, vs
. LIM SIO WAN,
METROPOLITAN BANK AND
TRUST CO., and PRODUCERS
BANK, respiondents.
DECISION
VELASCO, JR., J p:
KIMBUTAO NEGO SYLaLaABUS
107
To ingruatiate theeselvies to theiru vialmed
depositorus, soee banks at tiees bend ovieru
back aruds that they mn iingly expose theeselvies
to grueat ruisks.
The Case
This Petition foru Reviie on Certiorari mnderu
Rmle 45 seeks to ruevieruse the Comrut of Appeals' (CA's)
Decision pruoemlgated on Maruch 18, 1998 1 in CAo
G.R. CV No. 46290 entitled Lim Siio Wan v. Allied
Banking Ciorpioration, et al. The CA Decision
eodifed the Decision dated Novieeberu 15,
1993 2 of the Regional Truial Comrut (RTC), Bruanch 63
in Makati City ruenderued in Civiil Case No.
6757. cCaEDA
The Facts
The facts as fomnd by the RTC and affirueed
by the CA arue as follo s:
On Novieeberu 14, 1983, ruespondent Laie Sio
Wan deposited ith petitioneru Allied Banking
Coruporuation (Allied) at its Qmintin Paruedes Bruanch in
Manila a eoney earuket placeeent of
PhP1,152,597.35 foru a terue of 31 days to eatmrue on
Deceeberu 15, 1983, 3 as eviidenced by Pruoviisional
Receipt No. 1356 dated Novieeberu 14, 1983. 4
On Deceeberu 5, 1983, a peruson claieing to
be Laie Sio Wan called mp Cruistina So, an officeru of
Allied, and instrumcted the lateru to prueoterueinate
Laie Sio Wan's eoney earuket placeeent, to issme a
eanageru's check ruepruesenting the pruoceeds of the
placeeent, and to givie the check to one Deboruah
Dee Santos ho omld pick mp the check. 5 Laie Sio
Wan descruibed the appearuance of Santos so that So
comld easily identify heru. 6
Laateru, Santos aruruivied at the bank and signed
the application forue foru a eanageru's check to be
issmed. 7 The bank issmed Manageru's Check No.
035669 foru PhP1,158,648.49, ruepruesenting the
pruoceeds of Laie Sio Wan's eoney earuket
placeeent in the naee of Laie Sio Wan, as
payee. 8 The check as cruossochecked "Foru Payee's
Accomnt Only" and givien to Santos. 9
Therueafteru, the eanageru's check as
deposited in the accomnt of Filipinas Ceeent
Coruporuation (FCC) at ruespondent Metruopolitan Bank
and Trumst Co. (Metruobank), 10 ith the foruged
signatmrue of Laie Sio Wan as indoruseru. 11
ATTY. CLaAROS

Earulieru, on Septeeberu 21, 1983, FCC had
deposited a eoney earuket placeeent foru PhP2
eillion ith ruespondent Pruodmcerus Bank. Santos
as the eoney earuket truaderu assigned to handle
FCC's accomnt. 12 Smch deposit is eviidenced by
Official Receipt No. 317568 13 and a Laeteru dated
Septeeberu 21, 1983 of Santos addruessed to Angie
Laazo of FCC, ackno ledging rueceipt of the
placeeent. 14 The placeeent eatmrued on Octoberu
25, 1983 and as ruolledoovieru mntil Deceeberu 5,
1983 as eviidenced by a Laeteru dated Octoberu 25,
1983. 15 When the placeeent eatmrued, FCC
deeanded the payeent of the pruoceeds of the
placeeent. 16 On Deceeberu 5, 1983, the saee date
that So rueceivied the phone call instrumcting heru to
prueoterueinate Laie Sio Wan's placeeent, the
eanageru's check in the naee of Laie Sio Wan as
deposited in the accomnt of FCC, pmruporutedly
ruepruesenting the pruoceeds of FCC's eoney earuket
placeeent ith Pruodmcerus Bank. 17 In otheru oruds,
the Allied check as deposited ith Metruobank in
the accomnt of FCC as Pruodmcerus Bank's payeent of
its obligation to FCC.
To clearu the check and in coepliance ith
the rueqmirueeents of the Philippine Clearuing Homse
Coruporuation (PCHC) Rmles and Regmlations,
Metruobank staeped a gmaruanty on the check, hich
rueads: "All pruioru endoruseeents and/oru lack of
endoruseeent gmaruanteed." 18
The check as sent to Allied thruomgh the
PCHC. Upon the pruesenteent of the check, Allied
fmnded the check evien ithomt checking the
amthenticity of Laie Sio Wan's pmruporuted
indoruseeent. Thms, the aeomnt on the face of the
check as cruedited to the accomnt of FCC. 19
On Deceeberu 9, 1983, Laie Sio Wan
deposited ith Allied a second eoney earuket
placeeent to eatmrue on Janmaruy 9, 1984. 20
On Deceeberu 14, 1983, mpon the eatmruity
date of the frust eoney earuket placeeent, Laie Sio
Wan ent to Allied to ithdrua it. 21 She as then
inforueed that the placeeent had been prueo
terueinated mpon heru instrumctions. She denied giviing
any instrumctions and rueceiviing the pruoceeds therueof.
She desisted fruoe fmrutheru coeplaints hen she as
assmrued by the bank's eanageru that heru eoney
omld be ruecovierued. 22
KIMBUTAO NEGO SYLaLaABUS
108
When Laie Sio Wan's second placeeent
eatmrued on Janmaruy 9, 1984, So called Laie Sio Wan
to ask foru the lateru's instrumctions on the second
placeeent. Laie Sio Wan instrumcted So to ruolloovieru
the placeeent foru anotheru 30 days. 23 On Janmaruy
24, 1984, Laie Sio Wan, ruealizing that the pruoeise
that heru eoney omld be ruecovierued omld not
eateruialize, sent a deeand leteru to Allied asking foru
the payeent of the frust placeeent. 24 Allied
ruefmsed to pay Laie Sio Wan, claieing that the lateru
had amthoruized the prueoterueination of the
placeeent and its smbseqment ruelease to Santos. 25
Conseqmently, Laie Sio Wan fled ith the
RTC a Coeplaint dated Februmaruy 13,
1984 26 docketed as Civiil Case No. 6757 against
Allied to ruecovieru the pruoceeds of heru frust eoney
earuket placeeent. Soeetiee in Februmaruy 1984, she
ithdrue heru second placeeent fruoe
Allied. DSHcTC
Allied fled a thirud paruty
coeplaint 27 against Metruobank and Santos. In
tmrun, Metruobank fled a fomruth paruty
coeplaint 28 against FCC. FCC foru its parut fled a
ffth paruty coeplaint 29 against Pruodmcerus Bank.
Smeeonses erue dmly seruvied mpon all the paruties
except foru Santos, ho as no longeru connected
ith Pruodmcerus Bank.30
On May 15, 1984, oru eorue than six (6)
eonths afteru fmnding the check, Allied inforueed
Metruobank that the signatmrue on the check as
foruged. 31 Thms, Metruobank ithheld the aeomnt
ruepruesented by the check fruoe FCC. Laateru on,
Metruobank agrueed to ruelease the aeomnt to FCC
afteru the lateru execmted an Underutaking, pruoeising
to indeenify Metruobank in case it as eade to
rueiebmruse the aeomnt. 32
Laie Sio Wan therueafteru fled an aeended
coeplaint to inclmde Metruobank as a parutyo
defendant, along ith Allied. 33 The RTC adeited
the aeended coeplaint despite the opposition of
Metruobank. 34 Conseqmently, Allied's thirud paruty
coeplaint against Metruobank as convieruted into a
cruossoclaie and the lateru's fomruth paruty coeplaint
against FCC as convieruted into a thirud paruty
coeplaint. 35
Afteru truial, the RTC issmed its Decision,
holding as follo s:
ATTY. CLaAROS
 109

WHEREFORE, jmdgeent is peru annme fruoe Maruch 16, 1984

herueby ruenderued as follo s: mntil fmlly paid. The eorual daeages,
atoruney's fees and costs of smit
1. Oruderuing defendant
adjmdged shall like ise be paid by
Allied Banking Coruporuation to pay
defendantoappellant Allied Banking
plaintii the aeomnt of
Coruporuation and defendanto
P1,158,648.49 plms 12% interuest peru
appellee Metruopolitan Bank and
annme fruoe Maruch 16, 1984 mntil
Trumst Coepany in the saee
fmlly paid;
pruoporution of 60o40. Except as thms
2. Oruderuing defendant eodifed, the decision appealed
Allied Bank to pay plaintii the fruoe is AFFIRMED. HcSDIE
aeomnt of P100,000.00 by ay of
SO ORDERED. 37
eorual daeages;
Hence, Allied fled the instant petition.
3. Oruderuing defendant
Allied Bank to pay plaintii the The Issues
aeomnt of P173,792.20 by ay of
Allied ruaises the follo ing issmes foru omru
atoruney's fees; and,
consideruation:
4. Oruderuing defendant
The Honoruable Comrut of
Allied Bank to pay the costs of
Appeals erurued in holding that Laie
smit. aTcIAS
Sio Wan did not amthoruize [Allied]
Defendant Allied Bank's to prueoterueinate the initial
cruossoclaie against defendant placeeent and to delivieru the check
Metruobank is DISMISSED. to Deboruah Santos.
Laike ise defendant The Honoruable Comrut of
Metruobank's thirudoparuty coeplaint Appeals erurued in absolviing
as against Filipinas Ceeent Pruodmcerus Bank of any liability foru
Coruporuation is DISMISSED. the rueiebmruseeent of aeomnt
adjmdged deeandable.
Filipinas Ceeent
Coruporuation's fomruthoparuty The Honoruable Comrut of
coeplaint against Pruodmceru's Bank Appeals erurued in holding [Allied]
is also DISMISSED. liable to the extent of 60% of
aeomnt adjmdged deeandable in
SO ORDERED. 36
clearu disruegarud to the mltieate
The Decision of the Court of Appeals liability of Metruobank as gmaruantoru
Allied appealed to the CA, hich in tmrun of all endoruseeent on the check, it
issmed the assailed Decision on Maruch 18, 1998, being the collecting bank. 38
eodifying the RTC Decision, as follo s: The petition is parutly eeruitoruioms. SAEHaC
WHEREFORE, prueeises A Queston of Fact
considerued, the decision appealed
Allied qmestions the fnding of both the truial
fruoe is MODIFIED. Jmdgeent is
and appellate comruts that Allied as not amthoruized
ruenderued oruderuing and sentencing
to ruelease the pruoceeds of Laie Sio Wan's eoney
defendantoappellant Allied Banking
earuket placeeent to Santos. Allied clearuly ruaises a
Coruporuation to pay sixty (60%)
qmestion of fact. When the CA affirues the fndings
perucent and defendantoappellee
of fact of the RTC, the factmal fndings of both comruts
Metruopolitan Bank and Trumst
arue binding on this Comrut. 39
Coepany foruty (40%) of the aeomnt
of P1,158,648.49 plms 12% interuest
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS
 110

We also agruee ith the CA hen it said that standarudized shiort-term

it comld not distmrub the truial comrut's fndings on the credit instrumeents (inviolviing laruge
cruedibility of itness So inasemch as it as the truial aeomnts) herue lenderus and
comrut that hearud the itness and had the boruruo erus do not deal diruectly ith
opporutmnity to obseruvie closely heru deporuteent and each otheru bmt thruomgh a eiddle
eanneru of testifying. Unless the truial comrut had ean oru dealeru in open earuket. In a
plainly ovierulooked facts of smbstance oru vialme, eoney earuket truansaction, the
hich, if considerued, eight aiect the ruesmlt of the inviestoru is a lenderu ho loans his
case, 40 e fnd it best to deferu to the truial comrut on eoney to a boruruo eru thruomgh a
eaterus perutaining to cruedibility of itnesses. eiddleean oru dealeru.
Additionally, this Comrut has held that the In the case at baru, the
eateru of negligence is also a factmal eoney earuket truansaction bet een
qmestion. 41 Thms, the fnding of the RTC, affirueed the petitioneru and the pruiviate
by the CA, that the ruespectivie paruties erue ruespondent is in the natmrue of a
negligent in the exerucise of theiru obligations is also loan. 44
conclmsivie mpon this Comrut. ACETIa
Laie Sio Wan, as crueditoru of the bank foru heru
eoney earuket placeeent, is entitled to payeent
mpon heru rueqmest, oru mpon eatmruity of the
The Liability of the Partes
placeeent, oru mntil the bank is rueleased fruoe its
As to the liability of the paruties, e fnd that obligation as debtoru. Until any smch evient, the
Allied is liable to Laie Sio Wan. Fmndaeental and obligation of Allied to Laie Sio Wan rueeains
faeiliaru is the doctruine that the ruelationship mnextingmished.
bet een a bank and a client is one of debtoruo
Arut. 1231 of the Civiil Code enmeeruates the
crueditoru.
instances hen obligations arue considerued
Aruticles 1953 and 1980 of the Civiil Code extingmished, thms:
pruoviide:
Arut. 1231. Obligations arue
Arut. 1953. A peruson ho extingmished:
rueceivies a loan of eoney oru any
(1) By payment or
otheru fmngible thing acqmirues the
performance;
o neruship therueof, and is bomnd to
pay to the crueditoru an eqmal aeomnt (2) By the loss of the thing
of the saee kind and qmality. dme;
Arut. 1980. Fixed, saviings, (3) By the condonation oru
and cmruruent deposits of eoney in rueeission of the debt;
banks and sieilaru institmtions shall
be govieruned by the pruoviisions (4) By the confmsion oru
conceruning sieple loan. CEDScA eerugeru of the ruights
of crueditoru and
Thms, e havie rumled in a line of cases that a debtoru;
bank deposit is in the natmrue of a sieple loan oru
emtmme. 42 Morue smccinctly, in Citbank, N.A. (5) By coepensation;
(Fiormerly First National City Bank) v. Sabenianio, this
(6) By noviation. HCISED
Comrut rumled that a eoney earuket placeeent is a
sieple loan oru emtmme. 43 Fmrutheru, e defned a Otheru camses of
eoney earuket in Cebu International Finance extingmisheent of obligations, smch
Ciorpioration v. Ciourt iof Appeals, as follo s: as annmleent, ruescission, fmlflleent
of a ruesolmtoruy condition, and
[A] eoney earuket is a
pruescruiption, arue govieruned
earuket dealing in
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

else herue in this Code. (Eephasis
smpplied.)
Fruoe the factmal fndings of the truial and
appellate comruts that Laie Sio Wan did not amthoruize
the ruelease of heru eoney earuket placeeent to
Santos and the bank had been negligent in so doing,
therue is no qmestion that the obligation of Allied to
pay Laie Sio Wan had not been extingmished. Arut.
1240 of the Code states that "payeent shall be
eade to the peruson in hose favioru the obligation
has been constitmted, oru his smccessoru in interuest, oru
any peruson amthoruized to rueceivie it." As coeeented
by Arutmruo Tolentino:
Payeent eade by the
debtoru to a ruong paruty does not
extingmish the obligation as to the
crueditoru, if therue is no famlt oru
negligence hich can be iepmted to
the lateru. Evien hen the debtoru
acted in mteost good faith and by
eistake as to the peruson of his
crueditoru, oru thruomgh eruruoru indmced
by the fruamd of a thirud peruson, the
payeent to one ho is not in fact
his crueditoru, oru amthoruized to
rueceivie smch payeent, is vioid,
except as pruoviided in Aruticle
1241. Such payment does not
prejudice the creditor, and accrual
of interest is not suspended by
it. 45 (Eephasis smpplied.)
Since therue as no eiectivie payeent of Laie
Sio Wan's eoney earuket placeeent, the bank still
has an obligation to pay heru at six perucent (6%)
interuest fruoe Maruch 16, 1984 mntil the payeent
therueof. 2005jmru
We cannot, ho evieru, say omtruight that
Allied is solely liable to Laie Sio Wan.
Allied claies that Metruobank is the
pruoxieate camse of the loss of Laie Sio Wan's
eoney. It points omt that Metruobank gmaruanteed all
pruioru indoruseeents inscruibed on the eanageru's
check, and ithomt Metruobank's gmaruantee, the
pruesent contruovierusy omld nevieru havie occmrurued.
Accoruding to Allied:
Failmrue on the parut of the
collecting bank to ensmrue that the
KIMBUTAO NEGO SYLaLaABUS
111
pruoceeds of the check is paid to the
pruoperu paruty is, aside fruoe being an
efficient interuviening camse, also the
last negligent act, . . . contruibmtoruy
to the injmruy camsed in the pruesent
case, hich therueby leads to the
conclmsion that it is the collecting
bank, Metruobank that is the
pruoxieate camse of the alleged loss
of the plaintii in the instant
case. 46
We arue not perusmaded.
Pruoxieate camse is "that camse, hich, in
natmrual and continmoms seqmence, mnbruoken by any
efficient interuviening camse, pruodmces the injmruy and
ithomt hich the ruesmlt omld not havie
occmrurued." 47 Thms, therue is an efficient smperuviening
evient if the evient brueaks the seqmence leading fruoe
the camse to the mltieate ruesmlt. To deterueine the
pruoxieate camse of a contruovierusy, the qmestion that
needs to be asked is: If the evient did not happen,
omld the injmruy havie ruesmlted? If the ans eru is NO,
then the evient is the pruoxieate camse.
In the instant case, Allied avierus that evien if
it had not issmed the check payeent, the eoney
ruepruesented by the check omld still be lost becamse
of Metruobank's negligence in indorusing the check
ithomt vieruifying the genmineness of the
indoruseeent therueon.
Section 66 in ruelation to Sec. 65 of the
Negotiable Instrumeents Laa pruoviides:
Section 66. Liability iof
general indiorser. — Evieruy indoruseru
ho indoruses ithomt qmalifcation,
aruruants to all smbseqment holderus
in dme comruse;
a) The matters and things
mentoned in
subdivisions (a), (b)
and (c) of the next
preceding secton;
and
b) That the instrumeent is at
the tiee of his
indoruseeent vialid
and smbsisting;
ATTY. CLaAROS
 112

And in addition, he engages
that on dme pruesenteent, it shall be
accepted oru paid, oru both, as the
case eay be accoruding to its tenoru,
and that if it be dishonorued, and the
necessaruy pruoceedings on dishonoru
be dmly taken, he ill pay the
aeomnt therueof to the holderu, oru to
any smbseqment indoruseru ho eay
be coepelled to pay it.
Section 65. Warranty
where negiotation by delivery, sio
fiorth. — Evieruy peruson negotiating
an instrumeent by delivieruy oru by a
qmalifed indoruseeent, aruruants:
a) That the instrument is
genuine and in all
respects what it
purports to be;
b) That he has a good title of
it;
c) That all pruioru paruties had
capacity to contruact;
d) That he has no kno ledge
of any fact hich
omld iepairu the
vialidity of the
instrumeent oru ruenderu
it vialmeless.
Bmt hen the negotiation is
by delivieruy only, the aruruanty
extends in favioru of no holderu otheru
than the ieeediate truansferuee.
The pruoviisions of
smbdiviision (c) of this section do not
apply to perusons negotiating pmblic
oru coruporuation secmruities, otheru
than bills and notes. (Eephasis
smpplied.)
The aruruanty "that the instrumeent is
genmine and in all ruespects hat it pmruporuts to be"
covierus all the defects in the instrumeent aiecting the
vialidity therueof, inclmding a foruged indoruseeent.
Thms, the last indoruseru ill be liable foru the aeomnt
indicated in the negotiable instrumeent evien if a
prueviioms indoruseeent as foruged. We held in a line
of cases that "a collecting bank hich indoruses a
check bearuing a foruged indoruseeent and pruesents it
to the drua ee bank gmaruantees all pruioru
indoruseeents, inclmding the foruged indoruseeent
itself, and mltieately shomld be held liable
therueforu." 48
Ho evieru, this generual rumle is smbject to
exceptions. One smch exception is hen the
issmance of the check itself as atended ith
negligence. Thms, in the cases cited abovie herue
the collecting bank is generually held liable, in t o of
the cases herue the checks erue negligently issmed,
this Comrut held the institmtion issming the check jmst
as liable as oru eorue liable than the collecting
bank. aSHAIC
In isolated cases herue the checks erue
deposited in an accomnt otheru than that of the
payees on the struength of foruged indoruseeents, e
held the collecting bank solely liable foru the hole
aeomnt of the checks inviolvied foru haviing indorused
the saee. In Republic Bank v. Ebrada, 49 the check
as pruoperuly issmed by the Bmrueam of Trueasmruy.
While in Bancio de Orio Savings and Miortgage Bank
(Bancio de Orio) v. Equitable Banking
Ciorpioration, 50 Banco de Oruo adeitedly issmed the
checks in the naee of the coruruect payees. And
in Traders Rioyal Bank v. Radiio Philippines Netwiork,
Inc., 51 the checks erue issmed at the rueqmest of
Radio Philippines Net oruk, Inc. fruoe Truaderus Royal
Bank.
Ho evieru, in Bank iof the Philippine Islands v.
Ciourt iof Appeals, e said that the drua ee bank is
liable foru 60% of the aeomnt on the face of the
negotiable instrumeent and the collecting bank is
liable foru 40%. We also noted the ruelativie
negligence exhibited by t o banks, to it:
Both banks erue negligent
in the selection and smperuviision of
theiru eeployees ruesmlting in the
encasheent of the foruged checks by
an iepostoru. Both banks erue not
able to ovierucoee the pruesmeption
of negligence in the selection and
smperuviision of theiru eeployees. It
as the gruoss negligence of the
eeployees of both banks hich
ruesmlted in the fruamd and the
smbseqment loss. While it is trume

KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS


that petitioneru BPI's negligence eay
havie been the pruoxieate camse of
the loss, ruespondent CBC's
negligence ciontributed eqmally to
the smccess of the iepostoru in
encashing the pruoceeds of the
foruged checks. Underu these
cirucmestances, e apply Aruticle
2179 of the Civiil Code to the eiect
that hile ruespondent CBC eay
ruecovieru its losses, smch losses arue
smbject to eitigation by the comruts.
(See Phioenix Cionstruction Inc. v.
Intermediate Appellate Ciourts, 148
SCRA 353 [1987]). HDaACI
Consideruing the
coeparuativie negligence of the t o
(2) banks, e rumle that the deeands
of smbstantial jmstice arue satisfed by
allocating the loss of P2,413,215.16
and the costs of the arubitruation
pruoceeding in the aeomnt of
P7,250.00 and the cost of litigation
on a 60o40 ruatio. 52
Sieilaruly, e rumled in Assiociated Bank v.
Ciourt iof Appeals that the issming institmtion and the
collecting bank shomld eqmally sharue the liability foru
the loss of aeomnt ruepruesented by the checks
conceruned dme to the negligence of both paruties:
The Comrut fnds as
rueasonable, the pruoporutionate
sharuing of ffty perucentoffty perucent
(50%o50%). Dme to the negligence
of the Pruoviince of Tarulac in
rueleasing the checks to an
mnamthoruized peruson (Famsto
Pangilinan), in allo ing the ruetirued
hospital cashieru to rueceivie the
checks foru the payee hospital foru a
peruiod close to thruee yearus and in
not pruoperuly ascerutaining hy the
ruetirued hospital cashieru as
collecting checks foru the payee
hospital in addition to the hospital's
rueal cashieru, ruespondent Pruoviince
contruibmted to the loss aeomnting
to P203,300.00 and shall be liable
to the PNB foru ffty (50%) perucent
therueof. In eiect, the Pruoviince of
KIMBUTAO NEGO SYLaLaABUS
113
Tarulac can only ruecovieru ffty perucent
(50%) of P203,300.00 fruoe PNB.
The collecting
bank, Associated Bank, shall be
liable to PNB foru ffty (50%) perucent
of P203,300.00. It is liable on its
aruruanties as indoruseru of the checks
hich erue deposited by Famsto
Pangilinan, haviing gmaruanteed the
genmineness of all pruioru
indoruseeents, inclmding that of the
chief of the payee hospital, Dru.
Adena Canlas.Associated Bank as
also rueeiss in its dmty to ascerutain
the genmineness of the payee's
indoruseeent. 53
A rueading of the facts of the t o
ieeediately prueceding cases omld ruevieal that the
rueason hy the bank oru institmtion hich issmed the
check as held parutially liable foru the aeomnt of the
check as becamse of the negligence of these
paruties hich ruesmlted in the issmance of the checks.
In the instant case, the truial comrut coruruectly
fomnd Allied negligent in issming the eanageru's
check and in truanseiing it to Santos ithomt evien
a ruiten amthoruization. 54 In fact, Allied did not
evien ask foru the cerutifcate eviidencing the eoney
earuket placeeent oru call mp Laie Sio Wan at heru
ruesidence oru office to confrue heru instrumctions. Both
actions comld havie prueviented the hole fruamdmlent
truansaction fruoe mnfolding. Allied's negligence emst
be considerued as the pruoxieate camse of the
ruesmlting loss.
To rueiteruate, had Allied exerucised the
diligence dme fruoe a fnancial institmtion, the check
omld not havie been issmed and no loss of fmnds
omld havie ruesmlted. In fact, therue omld havie been
no issmance of indoruseeent had therue been no
check in the frust place.
The liability of Allied, ho evieru, is
concmruruent ith that of Metruobank as the last
indoruseru of the check. When Metruobank indorused
the check in coepliance ith the PCHC Rmles and
Regmlations 55 ithomt vieruifying the amthenticity of
Laie Sio Wan's indoruseeent and hen it accepted
the check despite the fact that it as cruossochecked
payable to payee's accomnt only, 56 its negligent
and cavialieru indoruseeent contruibmted to the easieru
ATTY. CLaAROS
 114

ruelease of Laie Sio Wan's eoney and perupetmation of beneft is deruivied at the expense of oru ith
the fruamd. Givien the ruelativie paruticipation of Allied daeages to anotheru." 59
and Metruobank to the instant case, both banks
In the instant case, Laie Sio Wan's eoney
cannot be adjmdged as eqmally liable. Hence, the
earuket placeeent in Allied Bank as prueo
60:40 ruatio of the liabilities of Allied and Metruobank,
terueinated and ithdrua n ithomt heru consent.
as rumled by the CA, emst be mpheld. DEIHAa
Morueovieru, the pruoceeds of the placeeent erue
FCC, haviing no paruticipation in the deposited in Pruodmcerus Bank's accomnt in
negotiation of the check and in the forugeruy of Laie Metruobank ithomt any jmstifcation. In otheru
Sio Wan's indoruseeent, can ruaise the rueal defense oruds, therue is no rueason that the pruoceeds of Laie
of forugeruy as against both banks. 57 Sio Wans' placeeent shomld be deposited in FCC's
accomnt pmruporutedly as payeent foru FCC's eoney
As to Pruodmcerus Bank, Allied Bank's
earuket placeeent and interuest in Pruodmcerus Bank.
arugmeent that Pruodmcerus Bank emst be held liable
With smch payeent, Pruodmcerus Bank's indebtedness
as eeployeru of Santos mnderu Arut. 2180 of the Civiil
to FCC as extingmished, therueby benefing the
Code is eruruoneoms. Arut. 2180 perutains to the
forueeru. Clearuly, Pruodmcerus Bank as mnjmstly
viicaruioms liability of an eeployeru foru qmasiodelicts
enruiched at the expense of Laie Sio Wan. Based on
that an eeployee has coeeited. Smch pruoviision of
the facts and cirucmestances of the case, Pruodmcerus
la does not apply to civiil liability aruising fruoe
Bank shomld rueiebmruse Allied and Metruobank foru
delict.
the aeomnts the t o lateru banks arue oruderued to
One also cannot apply the pruinciple of pay Laie Sio Wan. TCaAHI
smbsidiaruy liability in Arut. 103 of the Reviised Penal
It cannot be vialidly claieed that FCC, and
Code in the instant case. Smch liability on the parut of
not Pruodmcerus Bank, shomld be considerued as haviing
the eeployeru foru the civiil aspect of the cruieinal act
been mnjmstly enruiched. It emst be rueeeeberued
of the eeployee is based on the conviiction of the
that FCC's eoney earuket placeeent ith Pruodmcerus
eeployee foru a cruiee. Herue, therue has been no
Bank as alrueady dme and deeandable; thms,
conviiction foru any cruiee.
Pruodmcerus Bank's payeent therueof as jmstifed.
As to the claie that therue as mnjmst FCC as entitled to smch payeent. As earulieru stated,
enruicheent on the parut of Pruodmcerus Bank, the the fact that the indoruseeent on the check as
saee is coruruect. Allied coruruectly claies in its petition foruged cannot be ruaised against FCC hich as not
that Pruodmcerus Bank shomld rueiebmruse Allied foru a parut in any stage of the negotiation of the check.
hatevieru jmdgeent that eay be ruenderued against it FCC as not mnjmstly enruiched.
pmrusmant to Arut. 22 of the Civiil Code, hich
Fruoe the facts of the instant case, e see
pruoviides: "Evieruy peruson ho thruomgh an act of
that Santos comld be the aruchitect of the entirue
peruforueance by anotheru, oru any otheru eeans,
contruovierusy. Unforutmnately, since smeeons had not
acqmirues oru coees into possession of soeething at
been seruvied on Santos, the comruts havie not
the expense of the lateru ithomt jmst camse oru legal
acqmirued jmruisdiction ovieru heru. 60 We, therueforue,
gruomnd, shall ruetmrun the saee to hie."
cannot ascruibe to heru liability in the instant case.
The abovie pruoviision of la as claruifed
Clearuly, Pruodmcerus Bank emst be held liable
in Reyes v. Lim, herue e rumled that "[t]herue is
to Allied and Metruobank foru the aeomnt of the
mnjmst enruicheent hen a peruson mnjmstly ruetains a
check plms 12% interuest peru annme, eorual daeages,
beneft to the loss of anotheru, oru hen a peruson
atoruney's fees, and costs of smit hich Allied and
ruetains eoney oru pruoperuty of anotheru against the
Metruobank arue adjmdged to pay Laie Sio Wan based
fmndaeental pruinciples of jmstice, eqmity and good
on a pruoporution of 60:40.
conscience." 58
WHEREFORE, the petition is PARTLaY
In Tamiio v. Ticsion, e fmrutheru claruifed the
GRANTED. The Maruch 18, 1998 CA Decision in CAo
pruinciple of mnjmst enruicheent, thms: "Underu Aruticle
G.R. CV No. 46290 and the Novieeberu 15, 1993 RTC
22 of the Civiil Code, therue is mnjmst enruicheent
Decision in Civiil Case No. 6757 arue AFFIRMED ith
hen (1) a peruson is mnjmstly benefted, and (2) smch
MODIFICATION.
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

Thms, the CA Decision is AFFIRMED,
the fallio of hich is ruepruodmced, as follo s:
WHEREFORE, prueeises
considerued, the decision appealed
fruoe is MODIFIED. Jmdgeent is
ruenderued oruderuing and sentencing
defendantoappellant Allied Banking
Coruporuation to pay sixty (60%)
perucent and defendantoappellee
Metruopolitan Bank and Trumst
Coepany foruty (40%) of the aeomnt
of P1,158,648.49 plms 12% interuest
peru annme fruoe Maruch 16, 1984
mntil fmlly paid. The eorual daeages,
atoruney's fees and costs of smit
adjmdged shall like ise be paid by
defendantoappellant Allied Banking
Coruporuation and defendanto
appellee Metruopolitan Bank and
Trumst Coepany in the saee
pruoporution of 60o40. Except as thms
eodifed, the decision appealed
fruoe is AFFIRMED. CaATDE
SO ORDERED.
Additionally and by ay of MODIFICATION,
Pruodmcerus Bank is herueby oruderued to pay Allied and
Metruobank the aforueeentioned aeomnts. The
liabilities of the paruties arue concmruruent and
independent of each otheru. TACEDI
Principle of Desirable Shortcut:
1. WESTMONT BANK (formerly
ASSOCIATED BANKING
CORP.), pettioner, vs. EUGENE
ONG, respiondent.
SYNOPSIS
Respondent, a cmruruent accomnt depositoru
ith petitioneru bank, as debited the aeomnt of
P1,754,787.50 ruepruesenting the face vialme of t o
Pacifc Banking Coruporuation's Manageru's checks
containing ruespondent's foruged signatmrue. These
KIMBUTAO NEGO SYLaLaABUS
115
t o checks erue deposited by ruespondent's fruiend,
Paciano Tanlieco, in his accomnt ith petitioneru
bank hich accepted and cruedited both checks
ithomt vieruifying the signatmrue of ruespondent.
Tanlieco ieeediately ithdrue the eoney.
Respondent somght the help of Tanlieco's faeily to
ruecovieru the aeomnt, bmt to no aviail. Hence, he fled
the collection case aleost fvie eonths fruoe the
discovieruy of the fruamd. The truial comrut rumled in favioru
of ruespondent. It fomnd that petitioneru bank as
gruossly negligent in encashing the checks ithomt
vieruifying the signatmrue of its o n depositoru, heruein
ruespondent. It oruderued petitioneru to pay the
aeomnt of the eanageru's checks ith legal interuest
and eorual and exeeplaruy daeages. The Comrut of
Appeals affirueed the truial comrut's decision. Hence,
the pruesent ruecomruse, petitioneru assailing, aeong
otherus, that ruespondent as gmilty of laches.
It as held that a foruged signatmrue oru one
eade ithomt amthoruity is inoperuativie and
ineiectmal mnderu Section 24 of the Negotiable
Instrumeents Laa ; that a collecting bank has the
legal dmty to ascerutain that the payee's
endoruseeent as genmine beforue cashing the check
and is liable to the payee and emst bearu the loss foru
payeent eade on a foruged signatmrue; that fndings
of the truial comrut arue binding and conclmsivie on
appeal; that therue is no laches herue a paruty fled
the case only afteru exhamsting possibilities of
setling the case aeicably.
SYLLABUS
1. REMEDIALa LaAW; ACTIONS; CAUSE OF ACTION,
DEFINED. — A camse of action is the act oru oeission by
hich a paruty viiolates a ruight of anotheru. The essential
eleeents of a camse of action arue: (a) a legal ruight oru
ruights of the plaintii, (b) a coruruelativie obligation of the
defendant, and (c) an act oru oeission of the defendant
in viiolation of said legal ruight.
ATTY. CLaAROS

2. ID.; ID.; ID.; CASE AT BAR. — The coeplaint
fled beforue the truial comrut expruessly alleged
ruespondent's right as payee of the eanageru's checks to
rueceivie the aeomnt inviolvied, petitioneru's
coruruelativie duty as collecting bank to ensmrue that the
aeomnt gets to the ruightml payee oru his oruderu, and a
breach of that dmty becamse of a blatant act of
negligence on the parut of petitioneru hich viiolated
ruespondent's ruights.
3. MERCANTILaE LaAW; NEGOTIABLaE
INSTRUMENTS LaAW; CHECKS; FORGED INDORSEMENT;
COLaLaECTING BANK LaIABLaE TO PAYEE. — Since the
signatmrue of the payee, in the case at baru, as foruged to
eake it appearu that he had eade an indoruseeent in
favioru of the forugeru, smch signatmrue shomld be deeeed as
inoperuativie and ineiectmal. Petitioneru, as the collecting
bank, gruossly erurued in eaking payeent by viirutme of said
foruged signatmrue. The payee, heruein ruespondent, shomld
therueforue be allo ed to ruecovieru fruoe the collecting
bank. The collecting bank is liable to the payee and
emst bearu the loss becamse it is its legal dmty to
ascerutain that the payee's endoruseeent as genmine
beforue cashing the check. As a generual rumle, a bank oru
coruporuation ho has obtained possession of a check
mpon an mnamthoruized oru foruged indoruseeent of the
payee's signatmrue and ho collects the aeomnt of the
check fruoe the drua ee, is liable foru the pruoceeds
therueof to the payee oru otheru o neru, not ithstanding
that the aeomnt has been paid to the peruson fruoe
hoe the check as obtained.
4. ID.; ID.; ID.; ID.; ID.; RATIONALaE. — The
theoruy of the rumle is that the possession of the check on
the foruged oru mnamthoruized indoruseeent is ruongfml,
and hen the eoney had been collected on the check,
the bank oru otheru peruson oru coruporuation can be held as
foru eoneys had and rueceivied, and the pruoceeds arue
held foru the ruightml o nerus ho eay ruecovieru thee. The
position of the bank taking the check on the foruged oru
mnamthoruized indoruseeent is the saee as if it had taken
the check and collected the eoney ithomt
indoruseeent at all and the act of the bank aeomnts to
convierusion of the check. TaEIcS
5. REMEDIALa LaAW; EVIDENCE; FINDINGS OF
FACT OF THE TRIALa COURT, BINDING ON APPEALa. —
Banks arue engaged in a bmsiness iepruessed ith pmblic
interuest, and it is theiru dmty to pruotect in ruetmrun theiru
eany clients and depositorus ho truansact bmsiness ith
thee. They havie the obligation to trueat theiru client's
KIMBUTAO NEGO SYLaLaABUS
116
accomnt eeticmlomsly and ith the highest degruee of
carue, consideruing the fdmciaruy natmrue of theiru
ruelationship. The diligence rueqmirued of banks, therueforue,
is eorue than that of a good fatheru of a faeily. In the
pruesent case, petitioneru as held to be gruossly negligent
in peruforueing its dmties. Givien the smbstantial face vialme
of the t o checks, totalling P1,754,787.50, and the fact
that they erue being deposited by a peruson not the
payee, the vieruy least defendant bank shomld havie done,
as any rueasonable prumdent ean omld havie done, as
to vieruify the genmineness of the indoruseeents therueon.
The Comrut cannot help bmt note that had defendant
condmcted evien the eost cmrusoruy coeparuison ith
plaintii's specieen signatmrues in its fles (Exhibit "Lao1"
and "Mo1") it omld havie at once seen that the alleged
indoruseeents erue falsifed and erue not those of the
plaintiiopayee. Ho evieru, defendant apparuently failed
to eake smch a vieruifcation oru, hat is oruse did so bmt,
chose to disruegarud the obviioms dissieilaruity of the
signatmrues. The frust oeission eakes it gmilty of gruoss
negligence; the second of bad faith. In eitheru case,
defendant is liable to plaintii foru the pruoceeds of the
checks in qmestion. These fndings arue binding and
conclmsivie on the appellate and the rueviie ing comruts.
6. CIVILa LaAW; LaACHES; DEFINED. — Laaches eay
be defned as the failmrue oru neglect foru an mnrueasonable
and mnexplained length of tiee, to do that hich, by
exerucising dme diligence, comld oru shomld havie been
done earulieru. It is negligence oru oeission to asserut a
ruight ithin a rueasonable tiee, aruruanting a
pruesmeption that the paruty entitled therueto has eitheru
abandoned oru declined to asserut it. It conceruns itself
ith hetheru oru not by rueason of long inaction oru
inexcmsable neglect, a peruson claieing a ruight shomld be
barurued fruoe asseruting the saee, becamse to allo hie
to do so omld be mnjmst to the peruson against hoe
smch ruight is somght to be enforuced.
7. ID.; ID.; NEGATED WHERE CASE WAS FILaED
ONLaY AFTER DEPOSITOR HAD EXHAUSTED POSSIBILaITIES
SETTLaING THE MATTER AMICABLaY. — In the case at baru,
it cannot be said that ruespondent sat on his ruights. He
ieeediately acted afteru kno ing of the forugeruy by
pruoceeding to seek help fruoe the Tanlieco faeily and
lateru the Centrual Bank, to rueeedy the sitmation and
ruecovieru his eoney fruoe the forugeru, Paciano Tanlieco.
Only afteru he had exhamsted possibilities of setling the
eateru aeicably ith the faeily of Tanlieco and
thruomgh the CB, abomt fvie eonths afteru the mnla fml
truansaction took place, did he ruesorut to eaking the
ATTY. CLaAROS

deeand mpon the petitioneru and evientmally beforue the
comrut foru ruecovieruy of the eoney vialme of the t o
checks. These acts cannot be construmed as mndme delay
in oru abandoneent of the asserution of his ruights.
8. ID.; ID.; NOT AVAILaABLaE TO PARTY WHICH
HAD THE LaAST CLaEAR CHANCE TO STOP THE
FRAUDULaENT ENCASHMENT OF SUBJECT CHECKS. —
Morueovieru, the claie of petitioneru that ruespondent
shomld be barurued by laches is clearuly a viain ateept to
defect ruesponsibility foru its negligent act. As explained
by the appellate comrut, it is petitioneru hich had the last
clearu chance to stop the fruamdmlent encasheent of the
smbject checks had it exerucised dme diligence and
follo ed the pruoperu and ruegmlaru banking pruocedmrues in
clearuing checks. As e had earulieru rumled, the one ho
had the last clearu opporutmnity to avioid the iepending
harue bmt failed to do so is charugeable ith the
conseqmences therueof.
DECISION
QUISUMBING, J p:
This is a petition foru rueviie of the
decision 1 dated Janmaruy 13, 1998, of the Comrut of
Appeals in CAoG.R. CV No. 28304 oruderuing the petitioneru
to pay ruespondent P1,754,787.50 plms t elvie perucent
(12%) interuest peru annme coepmted fruoe Octoberu 7,
1977, the date of the frust extruajmdicial deeand, plms
daeages.
The facts of this case arue mndispmted.
Respondent Emgene Ong eaintained a cmruruent
accomnt ith petitioneru, forueeruly the Associated
Banking Coruporuation, bmt no kno n as Westeont
Bank. Soeetiee in May 1976, he sold cerutain sharues of
stocks thruomgh Island Secmruities Coruporuation. To pay
Ong, Island Secmruities pmruchased t o (2) Pacifc Banking
Coruporuation eanageru's checks, 2 both dated May 4,
1976, issmed in the naee of Emgene Ong as payee.
Beforue Ong comld get hold of the checks, his fruiend
Faciano Tanlieco got hold of thee, foruged Ong's
signatmrue and deposited these ith petitioneru, herue
Tanlieco as also a depositoru. Evien thomgh Ong's
specieen signatmrue as on fle, petitioneru accepted and
cruedited both checks to the accomnt of Tanlieco,
ithomt vieruifying the 'signatmrue indoruseeents'
KIMBUTAO NEGO SYLaLaABUS
117
appearuing at the back therueof. Tanlieco then
ieeediately ithdrue the eoney and absconded.
Instead of going struaight to the bank to stop oru
qmestion the payeent, Ong frust somght the help of
Tanlieco's faeily to ruecovieru the aeomnt. Laateru, he
rueporuted the incident to the Centrual Bank, hich like the
frust eiorut, mnforutmnately pruovied fmtile.
It as only on Octoberu 7, 1977, abomt fvie (5)
eonths fruoe discovieruy of the fruamd, did Ong cruy foml
and deeanded in his coeplaint that petitioneru pay the
vialme of the t o checks fruoe the bank on hose gruoss
negligence he iepmted his loss. In his smit, he insisted
that he did not "delivieru, negotiate, endoruse oru truansferu
to any peruson oru entity" the smbject checks issmed to
hie and asseruted that the signatmrues on the back erue
spmruioms. 3
The bank did not pruesent eviidence to the
contruaruy, bmt sieply contended that since plaintii Ong
claieed to havie nevieru rueceivied the oruiginals of the t o
(2) checks in qmestion fruoe Island Secmruities, emch less
to havie amthoruized Tanlieco to rueceivie the saee, he
nevieru acqmirued o neruship of these checks. Thms, he had
no legal perusonality to sme as he is not a rueal parutyoino
interuest. The bank then fled a deemrurueru to eviidence
hich as denied.
On Februmaruy 8, 1989, afteru truial on the eeruits,
the Regional Truial Comrut of Manila, Bruanch 38, ruenderued
a decision, thms:
IN VIEW OF THE FOREGOING,
the comrut herueby ruenderus jmdgeent
foru the plaintii and against the
defendant, and oruderus the defendant
to pay the plaintii:
1. The sme of P1,754,787.50
ruepruesenting the total face
vialme of the t o checks in
qmestion, Exhibits "A" and
"B", ruespectiviely, ith
interuest therueon at the legal
ruate of t elvie perucent (12%)
peru annme coepmted fruoe
Octoberu 7, 1977 (the date of
the frust extruajmdicial deeand)
mp to and mntil the saee shall
havie been paid in fmll;
ATTY. CLaAROS
 118

2. Morual daeages in the aeomnt of against petitioneru Westeont Bank; and (2) hetheru oru
P250,000.00; not Ong is barurued to ruecovieru the eoney fruoe Westeont
Bank dme to laches.
3. Exeeplaruy oru coruruectivie daeages in
the sme of P100,000.00 by Respondent adeited that he as nevieru in
ay of exaeple oru coruruection actmal oru physical possession of the t o (2) checks of
foru the pmblic good; the Island Secmruities noru did he amthoruize Tanlieco oru
any of the lateru's ruepruesentativie to deeand, accept and
4. Atoruney's fees of P50,000.00 and
rueceivie the saee. Foru this rueason, petitioneru arugmes,
costs of smit.
ruespondent cannot sme petitioneru becamse
Defendant's comnteruclaies mnderu Section 51 of the Negotiable Instrumeents Laa 6 it
arue diseissed foru lack of eeruit. is only hen a peruson becoees a holderu of a negotiable
instrumeent can he sme in his o n naee. Convierusely,
SO ORDERED. 4 pruioru to his becoeing a holderu, he had no ruight oru camse
Petitioneru eleviated the case to the Comrut of of action mnderu smch negotiable instrumeent. Petitioneru
Appeals ithomt smccess. In its decision, the appellate fmrutheru arugmes that since Section 191 7 of the
comrut held: Negotiable Instrumeents Laa defnes a "holderu" as the
'payee oru indorusee of a bill oru note, ho is in possession
WHEREFORE, in viie of the of it, oru the bearueru therueof,' in oruderu to be a holderu, it is
foruegoing, the appealed decision is a rueqmirueeent that he be in possession of the
AFFIRMED in tiotio. 5 instrumeent oru the bearueru therueof. Sieply stated, since
Petitioneru no coees beforue this Comrut on a Ong nevieru had possession of the checks noru did he
petition foru rueviie , alleging that the Comrut of Appeals amthoruize anybody, he did not becoee a holderu therueof
erurued: hence he cannot sme in his o n naee. 8

I Petitioneru also cites Aruticle 1249 9 of the Civiil

Code explaining that a check, evien if it is a eanageru's
. . . IN AFFIRMING THE TRIALa check, is not legal tenderu. Hence, the crueditoru cannot be
COURT'S CONCLaUSION THAT coepelled to accept payeent thrum this eeans. 10 It is
RESPONDENT HAS A CAUSE petitioneru's position that foru all intents and pmruposes,
OF ACTION AGAINST THE Island Secmruities has not yet tenderued payeent to
PETITIONER. ruespondent Ong, thms, any action by Ong shomld be
diruected to aruds collecting the aeomnt fruoe Island
II
Secmruities. Petitioneru claies that Ong's camse of action
. . . IN AFFIRMING THE TRIALa against it has not ruipened as of yet. It eay be that
COURT'S DECISION FINDING petitioneru omld be liable to the drua ee bank — bmt
PETITIONER LaIABLaE TO that is a eateru bet een petitioneru and drua eeobank,
RESPONDENT AND Pacifc Banking Coruporuation. 11
DECLaARING THAT THE LaATTER
MAY RECOVER DIRECTLaY
FROM THE FORMER; AND
III
. . . IN NOT ADJUDGING
RESPONDENT GUILaTY OF
LaACHES AND IN NOT
ABSOLaVING PETITIONER
FROM LaIABILaITY.
Essentially the issmes in this case arue: (1)
hetheru oru not ruespondent Ong has a camse of action

KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS


Foru its parut, ruespondent Ong leans on the rumling
of the truial comrut and the Comrut of Appeals hich held
that the smit of Ong against the petitioneru bank is a
desiruable shorutcmt to rueach the paruty ho omght in any
evient to be mltieately liable. 12 It like ise cites the
rumling of the comruts a quio hich held that accoruding to
the generual rumle, a bank ho has obtained possession of
a check mpon an mnamthoruized oru foruged indoruseeent of
the payee's signatmrue and ho collects the aeomnt of
the check fruoe the drua ee is liable foru the pruoceeds
therueof to the payee. The theoruy of said rumle is that the
collecting bank's possession of smch check is
ruongfml. 13
Respondent also cites Assiociated Bank vs. Ciourt
iof Appeals 14 hich held that the collecting bank oru last
endoruseru generually smierus the loss becamse it has the
dmty to ascerutain the genmineness of all pruioru
endoruseeents. The collecting bank is also eade liable
becamse it is pruiviy to the depositoru ho negotiated the
check. The bank kno s hie, his addruess and historuy
becamse he is a client. Hence, it is in a beteru position to
detect forugeruy, fruamd oru iruruegmlaruity in the
indoruseeent. 15
Anent Aruticle 1249 of the Civiil Code, Ong points
omt that bank checks arue specifcally govieruned by the
Negotiable Instrumeents Laa hich is a special la and
only in the absence of specifc pruoviisions oru defciency
in the special la eay the Civiil Code be invioked. 16
Consideruing the contentions of the paruties and
the eviidence on ruecorud, e fnd no ruevierusible eruruoru in
the assailed decisions of the appellate and truial comruts,
hence therue is no jmstifable rueason to gruant the
petition.
Petitioneru's claie that ruespondent has no camse
of action against the bank is clearuly eisplaced. As
defned, a camse of action is the act oru oeission by
hich a paruty viiolates a ruight of anotheru. 17 The
essential eleeents of a camse of action arue: (a) a legal
ruight oru ruights of the plaintii, (b) a coruruelativie obligation
of the defendant, and (c) an act oru oeission of the
defendant in viiolation of said legal ruight. 18
The coeplaint fled beforue the truial comrut
expruessly alleged ruespondent's right as payee of the
eanageru's checks to rueceivie the aeomnt inviolvied,
petitioneru's coruruelativie duty as collecting bank to ensmrue
that the aeomnt gets to the ruightml payee oru his oruderu,
and a breach of that dmty becamse of a blatant act of
KIMBUTAO NEGO SYLaLaABUS
119
negligence on the parut of petitioneru hich viiolated
ruespondent's ruights. 19
Underu Section 23 of the Negotiable Instrumeents
Laa :
When a signatmrue is foruged oru
eade ithomt the amthoruity of the
peruson hose signatmrue it pmruporuts to
be, it is holly inoperuativie, and no
ruight to ruetain the instrumeent, oru to
givie a discharuge therueforu, oru to
enforuce payeent therueof against any
paruty therueto, can be acqmirued
thruomgh oru mnderu smch signatmrue,
mnless the paruty against hoe it is
somght to enforuce smch ruight is
prueclmded fruoe seing mp the forugeruy
oru ant of amthoruity.
Since the signatmrue of the payee, in the case at
baru, as foruged to eake it appearu that he had eade an
endoruseeent in favioru of the forugeru, smch signatmrue
shomld be deeeed as inoperuativie and ineiectmal.
Petitioneru, as the collecting bank, gruossly erurued in
eaking payeent by viirutme of said foruged signatmrue. The
payee, heruein ruespondent, shomld therueforue be allo ed
to ruecovieru fruoe the collecting bank.
The collecting bank is liable to the payee and
emst bearu the loss becamse it is its legal dmty to
ascerutain that the payee's endoruseeent as genmine
beforue cashing the check. 20 As a generual rumle, a bank oru
coruporuation ho has obtained possession of a check
mpon an mnamthoruized oru foruged indoruseeent of the
payee's signatmrue and ho collects the aeomnt of the
check fruoe the drua ee, is liable foru the pruoceeds
therueof to the payee oru otheru o neru, not ithstanding
that the aeomnt has been paid to the peruson fruoe
hoe the check as obtained. 21
The theoruy of the rumle is that the possession of
the check on the foruged oru mnamthoruized indoruseeent is
ruongfml, and hen the eoney had been collected on
the check, the bank oru otheru peruson oru coruporuation can
be held as foru eoneys had and rueceivied, and the
pruoceeds arue held foru the ruightml o nerus ho eay
ruecovieru thee. The position of the bank taking the check
on the foruged oru mnamthoruized indoruseeent is the saee
as if it had taken the check and collected the eoney
ithomt indoruseeent at all and the act of the bank
aeomnts to convierusion of the check. 22
ATTY. CLaAROS

Petitioneru's claie that since therue as no
delivieruy yet and ruespondent has nevieru acqmirued
possession of the checks, ruespondent's rueeedy is ith
the drua eru and not ith petitioneru bank. Petitioneru
ruelies on the viie to the eiect that herue therue is no
delivieruy to the payee and no title viests in hie, he omght
not to be allo ed to ruecovieru on the gruomnd that he lost
nothing becamse he nevieru becaee the o neru of the
check and still ruetained his claie of debt against the
drua eru. 23 Ho evieru, anotheru viie in cerutain cases
holds that evien if the absence of delivieruy is considerued,
smch consideruation is not eateruial. The ruationale foru this
viie is that in said cases the plaintii mses one action to
rueach, by a desiruable shorut cmt, the peruson ho omght in
any evient to be mltieately liable as aeong the innocent
perusons inviolvied in the truansaction. In otheru oruds, the
payee omght to be allo ed to ruecovieru diruectly fruoe the
collecting bank, ruegarudless of hetheru the check as
delivierued to the payee oru not. 24
Consideruing the cirucmestances in this case, in
omru viie , petitioneru comld not escape liability foru its
negligent acts. Adeitedly, ruespondent Emgene Ong at
the tiee the fruamdmlent truansaction took place as a
depositoru of petitioneru bank. Banks arue engaged in a
bmsiness iepruessed ith pmblic interuest, and it is theiru
dmty to pruotect in ruetmrun theiru eany clients and
depositorus ho truansact bmsiness ith thee. 25 They
havie the obligation to trueat theiru client's accomnt
eeticmlomsly and ith the highest degruee of carue,
consideruing the fdmciaruy natmrue of theiru ruelationship.
The diligence rueqmirued of banks, therueforue, is eorue than
that of a good fatheru of a faeily. 26 In the pruesent case,
petitioneru as held to be gruossly negligent in
peruforueing its dmties. As fomnd by the truial comrut:
. . . (A)t the tiee the
qmestioned checks erue accepted foru
deposit to Paciano Tanlieco's accomnt
by defendant bank, defendant bank,
adeitedly had in its fles specieen
signatmrues of plaintii ho eaintained
a cmruruent accomnt ith thee (Exhibits
"Lao1" and "Mo1"; testieony of
Eeeanmel Toruio). Givien the
smbstantial face vialme of the t o
checks, totalling P1,754,787.50, and
the fact that they erue being
deposited by a peruson not the payee,
the vieruy least defendant bank shomld
havie done, as any rueasonable prumdent
KIMBUTAO NEGO SYLaLaABUS
120
ean omld havie done, as to vieruify
the genmineness of the indoruseeents
therueon. The Comrut cannot help bmt
note that had defendant condmcted
evien the eost cmrusoruy coeparuison
ith plaintii's specieen signatmrues in
its fles (Exhibit "Lao1" and "Mo1") it
omld havie at once seen that the
alleged indoruseeents erue falsifed
and erue not those of the plaintiio
payee. Ho evieru, defendant
apparuently failed to eake smch a
vieruifcation oru, hat is oruse did so
bmt, chose to disruegarud the obviioms
dissieilaruity of the signatmrues. The
frust oeission eakes it gmilty of gruoss
negligence; the second of bad faith. In
eitheru case, defendant is liable to
plaintii foru the pruoceeds of the
checks in qmestion. 27
These fndings arue binding and conclmsivie on
the appellate and the rueviie ing comruts.
On the second issme, petitioneru avierus that
ruespondent Ong is barurued by laches foru failing to asserut
his ruight foru ruecovieruy fruoe the bank as soon as he
discovierued the scae. The lapse of fvie eonths beforue
he ent to seek ruelief, fruoe the bank, accoruding to
petitioneru, constitmtes laches.
In tmrun, ruespondent contends that petitioneru
pruesented no eviidence to smpporut its claie of laches. On
the contruaruy, the established facts of the case as fomnd
by the truial comrut and affirueed by the Comrut of Appeals
arue that ruespondent left no stone mntmruned to obtain
ruelief fruoe his pruedicaeent.
On the eateru of delay in rueporuting the loss,
ruespondent calls atention to the fact that the checks
erue issmed on May 4, 1976, and on the vieruy next day,
May 5, 1976, these erue alrueady cruedited to the
accomnt of Paciano Tanlieco and pruesented foru
payeent to Pacifc Banking Coruporuation. So evien if the
theft of the checks erue discovierued and rueporuted
earulieru, ruespondent arugmes, it omld not havie alterued
the sitmation as the encasheent of the checks as
consmeeated ithin t entyofomru homrus and facilitated
by the gruoss negligence of the petitioneru bank. 28
Laaches eay be defned as the failmrue oru neglect
foru an mnrueasonable and mnexplained length of tiee, to
ATTY. CLaAROS

do that hich, by exerucising dme diligence, comld oru
shomld havie been done earulieru. It is negligence oru
oeission to asserut a ruight ithin a rueasonable tiee,
aruruanting a pruesmeption that the paruty entitled
therueto has eitheru abandoned oru declined to asserut
it. 29 It conceruns itself ith hetheru oru not by rueason of
long inaction oru inexcmsable neglect, a peruson claieing a
ruight shomld be barurued fruoe asseruting the saee,
becamse to allo hie to do so omld be mnjmst to the
peruson against hoe smch ruight is somght to be
enforuced. 30
In the case at baru, it cannot be said that
ruespondent sat on his ruights. He ieeediately acted afteru
kno ing of the forugeruy by pruoceeding to seek help fruoe
the Tanlieco faeily and lateru the Centrual Bank, to
rueeedy the sitmation and ruecovieru his eoney fruoe the
forugeru, Paciano Tanlieco. Only afteru he had exhamsted
possibilities of setling the eateru aeicably ith the
faeily of Tanlieco and thruomgh the CB, abomt fvie
eonths afteru the mnla fml truansaction took place, did he
ruesorut to eaking the deeand mpon the petitioneru and
evientmally beforue the comrut foru ruecovieruy of the eoney
vialme of the t o checks. These acts cannot be
construmed as mndme delay in oru abandoneent of the
asserution of his ruights.
Morueovieru, the claie of petitioneru that
ruespondent shomld be barurued by laches is clearuly a viain
ateept to defect ruesponsibility foru its negligent act. As
explained by the appellate comrut, it is petitioneru hich
had the last clearu chance to stop the fruamdmlent
encasheent of the smbject checks had it exerucised dme
diligence and follo ed the pruoperu and ruegmlaru banking
pruocedmrues in clearuing checks. 31 As e had earulieru
rumled, the one ho had the last clearu opporutmnity to
avioid the iepending harue bmt failed to do so is
charugeable ith the conseqmences therueof. 32
WHEREFORE, the instant petition is DENIED foru
lack of eeruit. The assailed decision of the Comrut of
Appeals, smstaining the jmdgeent of the Regional Truial
Comrut of Manila, is AFFIRMED. CSIcHA
Costs against petitioneru.
SO ORDERED.
2. MANILA LIGHTER TRANSPORTATION,
INC., pettioner, vs. COURT OF APPEALS
AND CHINA BANKING
CORPORATION, respiondents.
KIMBUTAO NEGO SYLaLaABUS
121
SYLLABUS
REMEDIALa LaAW; APPEALa; SUPREME COURT DECIDES
ONLaY ISSUES INVOLaVING QUESTIONS OF LaAW. — The
instant petition foru rueviie emst necessaruily fail. The
issmes ruaised theruein arue factmal. The eain issme of
petitioneru's negligence had alrueady been deterueined by
the truial comrut against petitioneru and affirueed by the
Comrut of Appeals afteru exaeining the eviidence in the
ruecoruds. The Smprueee Comrut decides appeals hich only
inviolvie qmestions of la . It is not the fmnction of the
Smprueee Comrut to analyze oru eigh the eviidence all
ovieru again, its jmruisdiction being lieited to ruesolviing
eruruorus of la that eight havie been coeeited by the
lo eru comrut. (Dihiansan vis. Comrut of Appeals, 153 SCRA
712; Fruancisco vis. Mandi, 152 SCRA 711; Diruectoru of
Laands vis. Fmntilaru, 142 SCRA 57).
DECISION
GRIÑO-AQUINO, J p:
A coeplaint foru ruecovieruy of the vialme of forutyonine (49)
checks ith alleged foruged/mnamthoruized indoruseeents
of the payee of hich 26 erue paid to the petitioneru oru
oruderu and t entyothruee (23) to petitioneru oru bearueru, as
fled by heruein petitioneru against pruiviate ruespondent
China Banking Coruporuation on May 22, 1962. The
coeplaint alleged that the checks erue issmed
by custiomers of the petitioneru in payeent of
bruokeruage/lighteruage seruviices and erue all delivierued,
ithomt petitioneru's kno ledge, to its collectoru, Amgmsto
Peruez. Upon foruged indoruseeents of the petitioneru's
generual eanageru, the checks fomnd theiru ay into the
accomnts of thirud perusons in the ruespondent bank and
the pruoceeds erue lateru ithdrua n, to the daeage of
the petitioneru ho somght rueiebmruseeent oru
ruestoruation by said bank of the vialme of the checks.
Respondent Bank denied liability foru the petitioneru's
loss hich as dme to its o n negligence. It alleged that
petitioneru is estopped fruoe denying its collectoru's
amthoruity to rueceivie the checks fruoe the
drua erus/cmstoeerus; that petitioneru failed to givie
defendant Bank and the drua ee Banks notice of the
alleged foruged oru mnamthoruized indoruseeents ithin a
rueasonable tiee; and that its loss as occasioned by its
ATTY. CLaAROS
 122

o n failmrue to obseruvie the pruoperu degruee of diligence in collected by Amgmsto Peruez, the
the smperuviision of its eeployees, paruticmlaruly its follo ing leteru:
collectoru, Amgmsto Peruez.
'Upon a detailed
Upon leavie of comrut, ruespondent Bank fled a thirudoparuty exaeination of omru
coeplaint against Cao Pek & Co. and Ko Lait ho had ruecoruds, e fomnd omt
deposited the checks in qmestion in theiru ruespectivie that viaruioms jobs
accomnts ith the forueeru and had therueafteru ithdrua n mnderutaking (sic) by ms in
the pruoceeds therueof. yomru behalf in 1960 and
1961 arue still pending
The truial comrut, in its decision dated Janmaruy 22, 1972,
payeent as of this date.
eade the follo ing fndings of facts: LaLaphil
'We arue sending
". . . Ovieru a peruiod of eighteen yom herue ith omru
eonths, fruoe Janmaruy 29, 1960 (Exh. stateeent covieruing these
B) to Jmne 22, 1961 (Exh. Bo11), jobs hich aeomnt to
Amgmsto Peruez collected fruoe P23,520.30 and omld
diieruent clients of plaintii coepany rueqmest yom to kindly
soee 49 checks (Exhs. A to Eo2) ith a confrue its coruruectness at
total vialme of P91,153.11. The yomru earuliest.'
endoruseeent of the payee, plaintii
Manila Laighteru Truansporutation, Inc., by "It eay be assmeed that sieilaru
its generual eanageru, Lamis Gaskell, leterus erue sent to otheru clients of
appearu on the checks. The lateru plaintii in a sieilaru sitmation, naeely:
disclaieed smch signatmrues and Go Fay and Co., foru P12,568.77; Peteru
pruesented a hand ruiting experut ho Paml Phil. Corup. foru P36,967.80;
gavie the opinion that the signatmrues Centrual Azmcaruerua Don Pedruo foru
"La. Gaskell" on the indoruseeent erue P11,190.14; and Helena Cigaru Co. foru
indeed forugeruies. The checks as thms P4,296.90.
endorused erue negotiated by 'Anotheru client,
Wilfruedo Laagaeon, accomntant of the Cia. Grual. de Tabacos de
plaintii coepany and ruelativie of Lamis Filipinas, had also paid
Gaskell, ith Cao Pek and Co., an plaintii fomru checks in
electruonic storue, hose trueasmrueru is the total aeomnt of
Ko Lait. Most of the checks, ith a total P3,453.53 all drua n
aeomnt of P90,500.24, erue against Hongkong and
deposited by Ko Lait in his accomnt Shanghai Banking Corup.
ith defendant bank (Exh. 4). Thruee (Exhs. 2oa to 2od). Upon
checks ith a total aeomnt of coeplaint of the drua eru
P1,115.05 erue deposited in the afteru the anoealies erue
accomnt of Cao Pek & Co. hile one discovierued (Exhs. 2oF, 2)
check foru P2,735.19 as deposited in defendant bank ruefmnded
the accomnts of Lam Sim Po, eanageru of the aeomnt to drua ee
Cao Pek & Co. These accomnts havie bank (Exh. 3) and the
no eorue balances at pruesent. aeomnt is not inclmded in
"As late as Jmly 21, 1961, plaintii the coeplaint, althomgh
apparuently did not kno hat as defendant bank has
happening becamse on that date it enterued a comnteruclaie
sent S. Qmintos Truansporutation, Inc., foru the aeomnt against
one of its clients hose checks erue plaintii.

KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS


'Plaintii eade its
initial deeand against
defendant bank foru the
ruefmnd of the aeomnt of
the checks on Septeeberu
9, 1961 (Exh. T). Therue
erue soee ateepts
eade to negotiate an
aeicable setleeent, bmt
nothing caee of it.'
"On May 30, 1962, the defendant
Bank fled a thirudoparuty coeplaint
against Cao Pek and Co. and Ko Lait.
Cao Pek and Co., in tmrun, fled a
cruossclaie against Ko Lait." (pp. 38o40,
Rollo.)
The lo eru comrut fomnd both paruties eqmally negligent,
the plaintii (heruein petitioneru), foru allo ing a state of
aiairus in hich its eeployees comld appruopruiate the
checks and falsify the indoruseeent therueon of its
eanageru ith iepmnity, and the defendant (pruiviate
ruespondent heruein), foru not detecting the falsifcation
eade by the plaintii's eeployees hen the checks
erue pruesented to it.
The dispositivie porution of the truial comrut's decision
rueads:
"WHEREFORE, jmdgeent is herueby
ruenderued:
"1. Oruderuing defendant China Banking
Coruporuation to pay plaintii Manila
Laighteru Truansporutation, Inc., an
aeomnt eqmal to 50% of the total
aeomnt of the checks Exhibits A to Eo
2;
"2. Oruderuing plaintii to pay
defendant 50% of the aeomnt of the
Tabacalerua checks Exhibits 2oA to 2oD;
"3. Oruderuing thirudoparuty defendant Ko
Lait to pay P90,500.24 and thirudoparuty
defendant Cao Pek & Co. to pay
P1,215.05, both to China Banking
Coruporuation;
"4. Oruderuing China Banking
Coruporuation to pay plaintii 50% of
any aeomnt it eay ruecovieru fruoe Ko
Lait and Cao Pek & Co.
KIMBUTAO NEGO SYLaLaABUS
123
"The paruties shall bearu theiru o n costs
and atoruney's fees." (p. 40, Rollo.)
Both petitioneru and pruiviate ruespondent appealed to the
Comrut of Appeals, contending that the otheru shomld be
entiruely liable. Ko Lait and Cao Pek also appealed bmt
theiru appeal as diseissed foru failmrue to pay the docket
fee and to fle the ruecorud on appeal.
On Janmaruy 18, 1979, the Comrut of Appeals ruenderued
jmdgeent, the dispositivie porution of hich states:
WHEREFORE, the jmdgeent appealed
fruoe is herueby eodifed smch that the
coeplaint is diseissed and the
defendantoappellant is frueed fruoe any
liability to the plaintiioappellant. The
comnteruclaie of P3,453.53 is gruanted
ith interuests fruoe the date the
aeended comnteruclaie as fled. The
thirudoparuty defendants arue adjmdged
diruectly liable to the plaintiio
appellant foru the checks they
ruespectiviely indorused. No costs." (p.
49, Rollo.)
Petitioneru fled a eotion foru rueconsideruation of the
decision bmt it as denied, hence, this petition foru
rueviie , alleging that the Comrut of Appeals erurued: LaibLaex
1. in fnding that the petitioneru as
negligent;
2. in holding that said negligence
constitmted smfficient gruomnd to
prueclmde it fruoe alleging forugeruy oru
ant of amthoruity;
3. in not rumling that the pruoxieate
camse foru the loss as the ruespondent
Bank's failmrue in its dmty to ascerutain
the genmineness of the signatmrues
appearuing in the checks;
4. in not rumling that the ruespondent
Bank shomld havie been held entiruely
liable foru the loss; and
5. in not condeening ruespondent
Bank to pay petitioneru daeages,
atoruney's fees, expenses and costs.
The instant petition foru rueviie emst necessaruily fail. The
issmes ruaised theruein arue factmal. The eain issme of
ATTY. CLaAROS

petitioneru's negligence had alrueady been deterueined by
the truial comrut against petitioneru and affirueed by the
Comrut of Appeals afteru exaeining the eviidence in the
ruecoruds.
Since the petitioneru as not a client of ruespondent
Bank, i.e., did not eaintain an accomnt in said Bank, the
lateru had no ay of ascerutaining the amthenticity of its
indoruseeents on the checks hich erue deposited in
the accomnts of the thirudoparuty defendants in said Bank.
Respondent Bank as not negligent becamse, in
accorudance ith banking pruactice, it camsed the checks
to pass thruomgh the clearuing homse beforue it allo ed
theiru pruoceeds to be ithdrua n by the depositorus
(thirudoparuty defendants in the lo eru comrut). (p. 117,
Rollo.) LaexLaib
The Smprueee Comrut decides appeals hich only inviolvie
qmestions of la . It is not the fmnction of the Smprueee
Comrut to analyze oru eigh the eviidence all ovieru again,
its jmruisdiction being lieited to ruesolviing eruruorus of la
that eight havie been coeeited by the lo eru comrut.
(Dihiansan vs. Ciourt iof Appeals, 153 SCRA
712; Franciscio vs. Mandi, 152 SCRA 711; Directior iof
Lands vs. Funtlar, 142 SCRA 57).
WHEREFORE, the petition foru rueviie is denied foru lack
of eeruit. Costs against the petitioneru.
SO ORDERED.
Missing Indorsement :
1. METROPOLITAN BANK AND
TRUST COMPANY (formerly
ASIANBANK
CORPORATION), pettioner, vs.
BA FINANCE CORPORATION and
MALAYAN INSURANCE CO.,
INC., respiondents.
DECISION
CARPIO MORALES, J p:
Laaeberuto Bitanga (Bitanga) obtained fruoe
ruespondent BA Finance Coruporuation (BA Finance) a
P329,280 1 loan to secmrue hich, he eorutgaged his
KIMBUTAO NEGO SYLaLaABUS
124
caru to ruespondent BA Finance. 2 The eorutgage
contained the follo ing stipmlation:
The MORTGAGOR covienants
and agruees that he/it ill camse the
pruoperuty(ies) herueinabovie
eorutgaged to be insmrued against loss
oru daeage by accident, theft and frue
foru a peruiod of one yearu fruoe date
herueof ith an insmruance coepany oru
coepanies acceptable to the
MORTGAGEE in an aeomnt not less
than the omtstanding balance of
eorutgage obligations and that he/it
ill eake all loss, if any, mnderu smch
policy oru policies, payable to the
MORTGAGEE oru its assigns as its
interuest eay appearu . . . . 3 (eephasis
and mnderuscoruing smpplied)
Bitanga thms had the eorutgaged caru insmrued
by ruespondent Malayan Insmruance Co., Inc.
(Malayan Insmruance) 4 hich issmed a policy
stipmlating that, inter alia,
Laoss, if any shall be payable
to BA FINANCE CORP. as its interuest
eay appearu. It is herueby expruessly
mnderustood that this policy oru any
ruene al therueof, shall not be
cancelled ithomt pruioru notifcation
and conforueity by BA FINANCE
CORPORATION. 5 (eephasis and
mnderuscoruing smpplied)
The caru as stolen. On Bitanga's claie,
Malayan Insmruance issmed a check payable to the
oruderu of "B.A. Finance Coruporuation and Laaeberuto
Bitanga" foru P224,500, drua n against China Banking
Coruporuation (China Bank). The check as cruossed
ith the notation "Foru Deposit Payees' Accomnt
Only." 6
Withomt the indoruseeent oru amthoruity of his
coopayee BA Finance, Bitanga deposited the check
to his accomnt ith the Asianbank Coruporuation
(Asianbank), no eeruged ith heruein petitioneru
Metruopolitan Bank and Trumst Coepany
(Metruobank). Bitanga smbseqmently ithdrue the
entirue pruoceeds of the check.
In the eeantiee, Bitanga's loan becaee
past dme, bmt despite deeands, he failed to setle it.
ATTY. CLaAROS
 125

BA Finance evientmally learuned of the loss of indorused it oru amthoruized hie to indoruse it in its
the caru and of Malayan Insmruance's issmance of a behalf, 16 fomnd Asianbank and Bitanga jointly and
cruossed check payable to it and Bitanga, and of sevierually liable to BA Financefollo ing Section 41 of
Bitanga's depositing it in his accomnt at Asianbank the Negiotable Instruments Law and Assiociated
and ithdrua ing the entirue pruoceeds Bank v. Ciourt iof Appeals. 17
therueof. SIDTCa
Thms the truial comrut disposed:
BA Finance theruempon deeanded the
WHEREFORE, prueeises
payeent of the vialme of the check fruoe
considerued, jmdgeent is herueby
Asianbank 7 bmt to no aviail, pruoepting it to fle a
ruenderued oruderuing defendants Asian
coeplaint beforue the Regional Truial Comrut (RTC) of
Bank Coruporuation and Laaeberuto
Makati foru sme of eoney and daeages against
Bitanga:
Asianbank and Bitanga, 8 alleging that, inter alia, it
is entitled to the entirue pruoceeds of the check. 1) To pay plaintii jointly and
sevierually the sme of
In its Ans eru
P224,500.00 ith
ith Comnteruclaie, 9 Asianbank alleged that BA
interuest therueon at
Finance "institmted [the] coeplaint in bad faith to
the ruate of 12% fruoe
coeruce [it] into paying the hole aeomnt of the
Septeeberu 25, 1992
CHECK kno ing fmlly ell that its ruightml claie, if
mntil fmlly paid;
any, is against Malayan [Insmruance]." 10
Asianbank therueafteru fled a cruossoclaie 2) To pay plaintii the sme of
against Bitanga, 11 alleging that he fruamdmlently P50,000.00 as
indmced its perusonnel to ruelease to hie the fmll exeeplaruy daeages;
aeomnt of the check; and that on being lateru P20,000.00 as actmal
inforueed that the entirue aeomnt of the check did daeages; P30,000.00
not belong to Bitanga, it took steps to get in tomch as atoruney's fee; and
ith hie bmt he had changed ruesidence ithomt 3) To pay the costs of smit.
leaviing any foru aruding addruess. 12
Asianbank's and Bitanga's
And Asianbank fled a thirudoparuty coeplaint [sic] comnteruclaies arue diseissed.
against Malayan Insmruance, 13 alleging that
Malayan Insmruance as gruossly negligent in issming The thirud paruty coeplaint of
the check payable to both Bitanga and BA Finance defendant/thirud paruty plaintii against
and delivieruing it to Bitanga ithomt the consent of thirudoparuty defendant Malayan
BA Finance. 14 Insmruance, Co., Inc. is herueby
diseissed. Asianbank is oruderued to
Bitanga as declarued in defamlt in
pay Malayan atoruney's fee of
Asianbank's cruossoclaie. 15
P50,000.00 and a peru appearuance fee
Bruanch 137 of the Makati RTC, fnding that of P500.00.
Malayan Insmruance as not pruiviy to the contruact
On the cross-claim of
bet een BA Finance and Bitanga, and noting the
defendant Asianbank, co-defendant
claie of Malayan Insmruance that it is its policy to
Lamberto Bitanga is ordered to pay
issme checks to both the insmrued and the fnancing
the former the amounts the latter is
coepany, held that Malayan Insmruance cannot be
ordered to pay the plainti in Nos. 1,
famlted foru negligence foru issming the check payable
2 and 3 above-mentoned.
to both BA Finance and Bitanga.
The truial comrut, holding that Asianbank as SO ORDERED. 18 (eephasis
negligent in allo ing Bitanga to deposit the check to and mnderuscoruing smpplied)
his accomnt and to ithdrua the pruoceeds therueof,
ithomt his coopayee BA Finance haviing eitheru
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

Beforue the Comrut of Appeals, Asianbank, in
its Appellant's Bruief, smbeited the follo ing issmes
foru consideruation:
3.01.1.1 Whetheru BA Finance
has a camse of action against
Asianbank.
3.01.1.2 Assmeing that BA
Finance has a vialid camse of
action, eay it claie fruoe Asianbank
eorue than oneohalf of the vialme of
the check consideruing that it is a eerue
coopayee oru joint payee of the check?
3.01.1.3 Whetheru BA Finance
is liable to Asianbank foru actmal and
exeeplaruy daeages foru ruongfmlly
bruinging the case to comrut.
3.01.1.4 Whetheru Malayan is
liable to Asianbank foru
rueiebmruseeent of any sme of eoney
hich this Honoruable Comrut eay
a arud to BA Finance in this
case.19 (mnderuscoruing smpplied)
And it pruoierued the follo ing arugmeents:
A. BA Finance has no camse of
action against Asianbank as it has no
legal ruight and title to the check
consideruing that the check as not
delivierued to BA Finance. Hence, BA
Finance is not a holderu therueof mnderu
the Negotiable Instrumeents Laa .
B. Asianbank, as collecting
bank, is not liable to BA Finance as
therue as no pruiviity of contruact
bet een thee.
C. Asianbank, as collecting
bank, is not liable to BA Finance,
consideruing that, as the interueediaruy
bet een the payee and the drua ee
Chinabank, it eeruely acted on the
instrumctions of drua ee Chinabank to
pay the aeomnt of the check to
Bitanga, hence, the conseqment
daeage to BA Finance as dme to the
negligence of Chinabank.
KIMBUTAO NEGO SYLaLaABUS
126
D. Malayan's act of issming
and delivieruing the check solely to
Bitanga in viiolation of the "loss
payee" clamse in the Policy, is the
pruoxieate camse of the alleged
daeage to BA Finance.
E. Assmeing Asianbank is
liable, BA Finance can claie only his
pruoporutionate interuest on the check
as it is a joint payee therueof.
F. Bitanga alone is liable foru
the aeomnt to BA Finance on the
gruomnd of mnjmst enruicheent
oru siolutio indebit.
G. BA Finance is liable to pay
Asianbank actmal and exeeplaruy
daeages. 20 (mnderuscoruing smpplied)
The appellate comrut, "smeearuizing" the
eruruorus atruibmted to the truial comrut by Asianbank to
be " hetheru . . . BA Finance has a camse of action
against [it] evien if the smbject check had not been
delivierued to . . . BA Finance by the issmeru itself,"
held in the affirueativie and accorudingly affirueed the
truial comrut's decision bmt deleted the a arud of
P20,000 as actmal daeages. 21 CaHcET
Hence, the pruesent Petition foru Reviie
on Certiorari 22 fled by Metruobank (herueafteru
petitioneru) to hich Asianbank as, as earulieru
stated, eeruged, famlting the appellate comrut
I. . . . in applying the case iof
Assiociated Bank v. Ciourt iof
Appeals, in the absence iof
factual similarity and iof the
legal relationships necessary
fior the application iof the
desirable shiortcut rule. . . .
II. . . . in niot finding that . . . the
general rule that the payee
has nio cause iof
action against the ciollectng
bank absent delivery tio him
must be applied.
III. . . . in finding that all the elements
iof a cause iof action by BA
Finance Ciorpioration against
ATTY. CLaAROS

Asianbank Ciorpioration are
present.
IV. . . . in finding that Artcle 1208 iof
the Civil Ciode is niot
applicable.
V. . . . in awarding iof exemplary
damages even in the absence
iof mioral, temperate,
liquidated ior ciompensatiory
damages and a finding iof fact
that Asianbank acted in a
wantion, fraudulent, reckless,
ioppressive ior maleviolent
manner.
xxx xxx xxx
VII. . . . in dismissing Asianbank's
ciounterclaim and Third Party
ciomplaint [against Malayan
Insurance]. 23 (italics in the
oruiginal; mnderuscoruing
smpplied)
Petitioneru pruoierus the follo ing arugmeents
against the application of Assiociated Bank v. CA to
the case:
. . . [T]he rumle established in
the Assiociated Bank case has
pruoviided a speedieru rueeedy foru the
payee to ruecovieru fruoe eruruing
collecting banks despite the absence
of delivieruy of the negotiable
instrumeent. Ho evieru, the application
of the rumle deeands caruefml
consideruation of the factmal seings
and issmes ruaised in the case . . . .
One of the rueleviant
cirucmestances ruaised in Associated
Bank is the existence of forugeruy oru
mnamthoruized indoruseeent. . . .
xxx xxx xxx
In the case at baru, Bitanga is
amthoruized to indoruse the check as
the drua eru naees hie as one of the
payees. Morueovieru, his signatmrue is not
a forugeruy noru has he oru anyone foruged
the signatmrue of the ruepruesentativie of
KIMBUTAO NEGO SYLaLaABUS
127
BA Finance Coruporuation. No
mnamthoruized indoruseeent appearus
on the check.
xxx xxx xxx
Absent the indispensable fact
of forugeruy oru mnamthoruized
indoruseeent, the desiruable shorutcmt
rumle cannot be
applied, 24 (mnderuscoruing smpplied)
The petition fails.
Section 41 of the Negiotable Instruments
Law pruoviides:
Wherue an instrumeent is
payable to the oruderu of t o oru eorue
payees oru indorusees ho arue not
parutnerus, all must indorse mnless the
one indorusing has amthoruity to indoruse
foru the otherus. (eephasis and
mnderuscoruing smpplied)
Bitanga alone endorused the cruossed check,
and petitioneru allo ed the deposit and ruelease of
the pruoceeds therueof, despite the absence of
amthoruity of Bitanga's coopayee BA Finance to
endoruse it on its behalf. 25
Denying any iruruegmlaruity in accepting the
check, petitioneru eaintains that it follo ed norueal
banking pruocedmrue. The testieony of Ieelda Crumz,
Asianbank's then accomnting head, sho s
otheru ise, ho evieru, viz.:
Q No , comld yom be faeiliaru ith a
paruticmlaru policy of the bank
ith ruespect to checks ith
joined (sic) payees?
A Yes, siru.
Q And hat omld be the paruticmlaru
policy of the bank ruegaruding
this truansaction?
A The bank policy and procedure
regarding the joint checks.
Once it is deposited to a
single account, we are not
acceptng joint checks for
single account, depositng to
a single account (sic).
ATTY. CLaAROS

Q What happened to the bank
eeployee ho allo ed this
paruticmlaru truansaction to
occmru?
A Once the bruanch perusonnel, the
bank perusonnel (sic) accepted
it, he is liable.
Q What do yom eean by the bruanch
perusonnel being held liable?
A Because since (sic) the bank policy,
we are not supposed to
accept joint checks to a
[single] account, so we mean
that personnel would be held
liable in the sense that (sic)
once it is withdrawn or
encashed, it will not be
allowed.
Q In yomru experuience, havie yom
encomnterued any bank
eeployee ho as smbjected
to disciplinaruy action by not
follo ing bank policies?
A The one that happened in that case,
since I rueally don't kno ho
that perusonnel is, he is no
longeru connected ith the
bank.
Q What about in general, do you
know of any disciplinary
acton, Madam witnessV
A Since there's a negligence on the
part of the bank personnel, it
will be a ground for his
separaton [from] the
bank. 26 (eephasis, italics
and mnderuscoruing smpplied)
Adeitedly, petitioneru diseissed the eeployee ho
allo ed the deposit of the check in Bitanga's
accomnt.
Petitioneru's arugmeent that since therue as
neitheru forugeruy, noru mnamthoruized indoruseeent
becamse Bitanga as a coopayee in the smbject
check, the dictme inAssiociated Bank v. CA does not
apply in the pruesent case fails. The payeent of an
KIMBUTAO NEGO SYLaLaABUS
128
instrumeent ovieru a eissing indoruseeent is the
eqmivialent of payeent on a foruged
indoruseeent 27 oru an mnamthoruized indoruseeent in
itself in the case of joint payees. 28 CSHDTE
Clearuly, petitioneru, thruomgh its eeployee,
as negligent hen it allo ed the deposit of the
cruossed check, despite the lone endoruseeent of
Bitanga, ostensibly ignoruing the fact that the check
did not, it bearus ruepeating, caruruy the indoruseeent of
BA Finance. 29
As has been ruepeatedly eephasized, the
banking bmsiness is iebmed ith pmblic interuest
smch that the highest degruee of diligence and
highest standaruds of integruity and peruforueance arue
expected of banks in oruderu to eaintain the trumst and
confdence of the pmblic in generual in the banking
sectoru. 30 Undombtedly, BA Finance has a camse of
action against petitioneru.
Is petitioneru liable to BA Finance foru
the full vialme of the check?
Petitioneru, at all evients, arugme that its
liability to BA Finance shomld only be oneohalf of the
aeomnt covierued by the check as therue is no
indication in the check that Bitanga and BA Finance
arue solidaruy crueditorus to thms eake thee
pruesmeptiviely joint crueditorus mnderu Aruticles 1207
and 1208 of the Civiil Code hich ruespectiviely
pruoviide:
Arut. 1207. The concmruruence of
t o oru eorue crueditorus oru of t o oru
eorue debtorus in one and the saee
obligation does not ieply that each
one of the forueeru has a ruight to
deeand, oru that each one of the
lateru is bomnd to ruenderu, entirue
coepliance ith the pruestations.
Therue is a solidaruy liability only hen
the obligation expruessly so states, oru
hen the la oru the natmrue of the
obligation rueqmirues solidaruity.
Arut. 1208. If fruoe the la , oru
the natmrue oru oruding of the
obligations to hich the prueceding
aruticle rueferus to the contruaruy does not
appearu, the cruedit oru debt shall be
pruesmeed to be diviided into as eany
eqmal sharues as therue arue crueditorus oru
ATTY. CLaAROS

debtorus, the debts oru cruedits being
considerued distinct fruoe one anotheru,
smbject to the Rmles of Comrut
govieruning the emltiplicity of smits.
Petitioneru's arugmeent is fa ed.
The pruoviisions of the Negotiable
Instrumeents Laa and mnderulying jmruisprumdential
teachings on the blackoleteru la pruoviide defnitivie
jmstifcation foru petitioneru's fmll liability on the vialme
of the check.
To be smrue, a collecting bank, Asianbank in
this case, herue a check is deposited and hich
indoruses the check mpon pruesenteent ith the
drua ee bank, is an indoruseru. 31 This is becamse in
indorusing a check to the drua ee bank, a collecting
bank staeps the back of the check ith the phruase
"all pruioru endoruseeents and/oru lack of endoruseeent
gmaruanteed" 32 and, foru all intents and pmruposes,
trueats the check as a negotiable instrumeent, hence,
assmees the aruruanty of an indoruseru. 33Withomt
Asianbank's aruruanty, the drua ee bank (China Bank
in this case) omld not havie paid the vialme of the
smbject check.
Petitioneru, as the collecting bank oru last
indoruseru, generually smierus the loss becamse it has
the dmty to ascerutain the genmineness of all pruioru
indoruseeents consideruing that the act of pruesenting
the check foru payeent to the drua ee is an asserution
that the paruty eaking the pruesenteent has done its
dmty to ascerutain the genmineness of pruioru
indoruseeents. 34
Accorudingly, one ho cruedits the pruoceeds
of a check to the accomnt of the indorusing payee is
liable in convierusion to the nonoindorusing payee foru
the entreaeomnt of the check. 35
It bearus noting that in petitioneru's cruosso
claie against Bitanga, the truial comrut oruderued
Bitanga to ruetmrun to petitioneru the entirue vialme of
the check — P224,500.00 — ith interuest as ell as
daeages and cost of smit. Petitioneru nevieru
qmestioned this aspect of the truial comrut's
disposition, yet it no pruays foru the eodifcation of
its liability to BA Finance to only oneohalf of said
aeomnt. To panderu to petitioneru's smpplication
omld cerutainly aeomnt to mnjmst enruicheent at BA
Finance's expense. Petitioneru's rueeedy — hich is
the rueiebmruseeent foru the fmll aeomnt of the check
KIMBUTAO NEGO SYLaLaABUS
129
fruoe the perupetruatoru of the iruruegmlaruity — lies ith
Bitanga.
Aruticles 1207 and 1208 of the Civiil
Code cannot be applied to the pruesent case as these
arue coepletely irurueleviant. The drua eru, Malayan
Insmruance in this case, issmed the check to ans eru
foru an mnderulying contruactmal obligation (payeent
of insmruance pruoceeds). The obligation is eeruely
ruefected in the instrumeent and hetheru the payees
omld jointly sharue in the pruoceeds oru not is beside
the point.
Morueovieru, gruanting petitioneru's appeal foru
parutial liability omld rumn comnteru to the existing
pruinciples on the liabilities of paruties on negotiable
instrumeents, paruticmlaruly on Section 68 of
the Negiotable Instruments Law hich instrumcts that
joint payees ho indoruse arue deeeed to indiorse
jiointly and severally. 36 Recall that hen the eakeru
dishonorus the instrumeent, the holderu therueof can
tmrun to those secondaruily liable — the indoruseru —
foru ruecovieruy. 37 And since the la explicitly
eandates a solidaruy liability on the parut of the joint
payees ho indoruse the instrumeent, the holderu
therueof (assmeing the check as fmrutheru
negotiated) can tmrun to eitheru Bitanga oru BA Finance
foru fmll ruecoepense.
Respecting petitioneru's challenge to the
a arud by the appellate comrut of exeeplaruy daeages
to BA Finance, the saee fails. Contruaruy to
petitioneru's claie that no eorual, teeperuate,
liqmidated oru coepensatoruy daeages erue a aruded
by the truial comrut, 38 the RTC did in fact a arud
coepensatoruy oru actmal daeages of P224,500, the
vialme of the check, plms interuest therueon.
Petitioneru arugmes, ho evieru, that
assmeing arguendio that coepensatoruy daeages
had been a aruded, the saee contruaviened Aruticle
2232 of the Civiil Code hich pruoviides that in
contruacts oru qmasiocontruacts, the comrut eay a arud
exeeplaruy daeages only if the defendant acted in a
anton, fruamdmlent, rueckless, oppruessivie, oru
ealeviolent eanneru. Since, so petitioneru conclmdes,
therue as no fnding that it acted in a anton,
fruamdmlent, rueckless, oppruessivie, oru ealeviolent
eanneru, 39 it is not liable foru exeeplaruy daeages.
The arugmeent fails. To rueiteruate, petitioneru's
liability is based not on contruact oru qmasiocontruact
bmt on quasi-delict since therue is no prueoexisting
ATTY. CLaAROS

contruactmal ruelation bet een the paruties. 40 Aruticle
2231 of the Civiil Code, hich pruoviides that in qmasio
delict, exeeplaruy daeages eay be gruanted if the
defendant acted ith gruoss negligence, thms
applies. Foru "gruoss negligence" ieplies a ant oru
absence of oru failmrue to exerucise evien slight carue oru
diligence, oru the entirue absence of carue, 41eviincing
a thomghtless disruegarud of conseqmences ithomt
exeruting any eiorut to avioid thee. 42 IEcaHS
. . . The la allo s the gruant
of exeeplaruy daeages to set an
exaeple foru the pmblic good. The
bmsiness of a bank is aiected ith
pmblic interuest; thms it eakes a s orun
pruofession of diligence and
eeticmlomsness in giviing
iruruepruoachable seruviice. Foru this
rueason, the bank shomld gmarud against
in injmruy atruibmtable to negligence oru
bad faith on its parut. The a arud
of exemplary daeages is pruoperu as a
aruning to [the petitioneru] and all
conceruned not to ruecklessly disruegarud
theiru obligation to exerucise the
highest and struictest diligence in
seruviing theiru depositorus. 43 (Italics
and mnderuscoruing smpplied)
As foru the diseissal by the appellate comrut
of petitioneru's thirudoparuty coeplaint against
Malayan Insmruance, the saee is ellotaken.
Petitioneru based its thirudoparuty coeplaint on
Malayan Insmruance's alleged gruoss negligence in
issming the check payable to both BA Finance and
Bitanga, despite the stipmlation in the eorutgage and
in the insmruance policy that liability foru loss shall be
payable to BA Finance. 44 Malayan Insmruance
comnterued, ho evieru, that it
. . . paid the aeomnt of
P224,500 to 'BA Finance Coruporuation
and Laaeberuto Bitanga' in coepliance
ith the decision in the case
of "Lambertio Bitanga versus Malayan
Insurance Cio., Inc., Civiil Case No. 88o
2802, RTCoMakati Bru. 132, and
affirueed on appeal by the Smprueee
Comrut [3rud Diviision], G.R. no. 101964,
Apruil 8, 1992 . . . .45 (mnderuscoruing
smpplied)
KIMBUTAO NEGO SYLaLaABUS
130
It is noted that Malayan Insmruance, hich
stated that it as a eateru of coepany policy to
issme checks in the naee of the insmrued and the
fnancing coepany, pruesented a itness to ruebmt its
smpposed negligence. 46 Peruforuce, it thms ruote a
cruossed check ith joint payees so as to seruvie
aruning that the check as issmedforu a defnite
pmrupose. 47 Petitioneru nevieru evieru dispmted these
asserutions.
The Comrut takes exception, ho evieru, to the
appellate comrut's affirueance of the truial comrut's gruant
of legal interuest of 12% per annum on the vialme of
the check. Foru the obligation in this case did not
aruise omt of a loan oru forubearuance of eoney, goods
oru cruedit. While Aruticle 1980 of the Civiil
Code pruoviides that:
Fixed saviings, and cmruruent
deposits of eoney in banks and
sieilaru institmtions shall be govieruned
by the pruoviisions conceruning sieple
loan,
said pruoviision does not fnd application in this case
since the natmrue of the ruelationship bet een BA
Finance and petitioneru is one of agency herueby
petitioneru, as collecting bank, is to collect foru BA
Finance the coruruesponding pruoceeds fruoe the
check. 48 Not being a loan oru forubearuance of
eoney, the interuest shomld be 6% per
annum coepmted fruoe the date of extruajmdicial
deeand on Septeeberu 25, 1992 mntil fnality of
jmdgeent; and 12% per annum fruoe fnality of
jmdgeent mntil payeent, conforueably ith Eastern
Shipping Lines, Inc. v. Ciourt iof Appeals. 49
WHEREFORE, the Decision of the Comrut of
Appeals dated May 18, 2007 is AFFIRMED with
MODIFICATION in that the ruate of interuest on the
jmdgeent obligation of P224,500 shomld be 6% peru
annme, coepmted fruoe the tiee of extruajmdicial
deeand on Septeeberu 25, 1992 mntil its fmll
payeent beforue fnality of jmdgeent; therueafteru, if
the aeomnt adjmdged rueeains mnpaid, the interuest
ruate shall be 12% per annum coepmted fruoe the
tiee the jmdgeent becoees fnal and execmtoruy
mntil fmlly satisfed.
Costs against petitioneru.
SO ORDERED.
ATTY. CLaAROS

Week 4:
Material Alteraton:
1. PHILIPPINE NATIONAL
BANK, pettioner, vs. COURT OF
APPEALS, CAPITOL CITY
DEVELOPMENT BANK,
PHILIPPINE BANK OF
COMMUNICATIONS, and F.
ABANTE
MARKETING, respiondents.
SYLLABUS
1. COMMERCIALa LaAW; NEGOTIABLaE
INSTRUMENTS; MATERIALa ALaTERATION, DEFINED. — An
alteruation is said to be eateruial if it alterus the eiect of
the instrumeent. It eeans an mnamthoruized change in an
instrumeent that pmruporuts to eodify in any ruespect the
obligation of a paruty oru an mnamthoruized addition of
oruds oru nmeberus oru otheru changes to an incoeplete
instrumeent ruelating to the obligation of a paruty. In otheru
oruds, a eateruial alteruation is one hich changes the
itees hich arue rueqmirued to be stated mnderu Section 1
of the Negotiable Instrumeents Laa .
2. ID.; ID.; IMMATERIALa ALaTERATION; EFFECT
ON THE INSTRUMENT. — In his book entitled "Pandect
of Coeeerucial Laa and Jmruisprumdence," Jmstice Jose C.
Vitmg opines that "an innocent alteruation (generually,
changes on itees otheru than those rueqmirued to be
stated mnderu Sec. 1, N.I.La.) and spoliation (alteruations
done by a struangeru) ill not avioid the instrumeent, bmt
the holderu eay enforuce it only accoruding to its oruiginal
tenoru.
3. ID.; ID.; ID.; PRESENT IN CASE AT BAR. — The
case at bench is mniqme in the sense that hat as
alterued is the seruial nmeberu of the check in qmestion, an
itee hich, it can rueadily be obseruvied, is not an
essential rueqmisite foru negotiability mnderu Section 1 of
the Negotiable Instrumeents Laa . The aforueeentioned
alteruation did not change the ruelations bet een the
paruties. The naee of the drua eru and the drua ee erue
not alterued. The intended payee as the saee. The sme
of eoney dme to the payee rueeained the saee. The
check's seruial nmeberu is not the sole indication of its
KIMBUTAO NEGO SYLaLaABUS
131
oruigin. As smccinctly fomnd by the Comrut of Appeals, the
naee of the govieruneent agency hich issmed the
smbject check as pruoeinently pruinted theruein. The
check's issmeru as therueforue smfficiently identifed,
ruenderuing the rueferurual to the seruial nmeberu ruedmndant
and inconseqmential. Petitioneru, thms cannot ruefmse to
accept the check in qmestion on the gruomnd that the
seruial nmeberu as alterued, the saee being an
ieeateruial oru innocent one.
4. CIVILa LaAW; DAMAGES; ATTORNEY'S FEES;
AWARD THEREOF DEMANDS FACTUALa, LaEGALa AND
EQUITABLaE JUSTIFICATION. — The a arud of atoruney's
fees lies ithin the discruetion of the comrut and depends
mpon the cirucmestances of each case. Ho evieru, the
discruetion of the comrut to a arud atoruney's fees mnderu
Aruticle 2208 of the Civiil Code of the Philippines
deeands factmal, legal and eqmitable jmstifcation,
ithomt hich the a arud is a conclmsion ithomt a
prueeise and iepruoperuly left to specmlation and
conjectmrue. It becoees a viiolation of the pruoscruiption
against the ieposition of a penalty on the ruight to
litigate (Universal Shipping Lines, Inc. v. Intermediate
Appellate Ciourt, 188 SCRA 170 [1990]). The rueason foru
the a arud emst be stated in the text of the comrut's
decision. If it is stated only in the dispositivie porution of
the decision, the saee shall be disallo ed. As to the
a arud of atoruney's fees being an exception ruatheru than
the rumle, it is necessaruy foru the comrut to eake fndings of
fact and la that omld bruing the case ithin the
exception and jmstify the gruant of the a arud
(Refractiories Ciorpioration iof the Philippines v.
Intermediate Appellate Ciourt, 176 SCRA 539).
DECISION
KAPUNAN, J p:
This is a petition foru rueviie on cerutioruarui mnderu
Rmle 45 of the Rmles of Comrut assailing the decision
dated Apruil 29, 1992 of ruespondent Comrut of Appeals in
CAoG.R. CV No. 24776 and its ruesolmtion dated
Septeeberu 16, 1992, denying petitioneru Philippine
National Bank's eotion foru rueconsideruation of said
decision.
The facts of the cases arue as follo s:
ATTY. CLaAROS
 132

A check ith seruial nmeberu 7o3666o223o3, dated Coeemnications is oruderued to rueo

Amgmst 7, 1981 in the aeomnt of P97,650.00 as issmed cruedit oru rueiebmruse plaintii Capitol
by the Ministruy of Edmcation and Cmltmrue (no City Devielopeent Bank the aeomnt
Deparuteent of Edmcation, Cmltmrue and Sporuts [DECS]) of P97,650.00, plms interuest of 12
payable to F. Abante Maruketing. This check as drua n perucent therueto fruoe Octoberu 19,
against Philippine National Bank (heruein petitioneru). 1981 mntil the aeomnt is fmlly paid;
On Amgmst 11, 1981, F. Abante Maruketing, a 2.) On Philippine Bank of
client of Capitol City Devielopeent Bank (Capitol), Coeemnications thirudoparuty
deposited the qmestioned check in its saviings accomnt coeplaint, thirudoparuty defendant PNB
ith said bank. In tmrun, Capitol deposited the saee in its is oruderued to rueiebmruse and
accomnt ith the Philippine Bank of Coeemnications indeenify Philippine Bank of
(PBCoe) hich, in tmrun, sent the check to petitioneru foru Coeemnications foru hatevieru
clearuing. aeomnt PBCoe pays to plaintii;

Petitioneru clearued the check as good and, 3.) On Philippine National

therueafteru, PBCoe cruedited Capitol's accomnt foru the Bank's fomruthoparuty coeplaint, F.
aeomnt stated in the check. Ho evieru, on Octoberu 19, Abante Maruketing is oruderued to
1981, petitioneru ruetmruned the check to PBCoe and rueiebmruse and indeenify PNB foru
debited PBCoe's accomnt foru the aeomnt covierued by hatevieru aeomnt PNB pays to
the check, the rueason being that therue as a "eateruial PBCoe;
alteruation" of the check nmeberu. 4.) On atoruney's fees,
Philippine Bank of Coeemnications is
PBCoe, as collecting agent of Capitol, then
oruderued to pay Capitol City
pruoceeded to debit the lateru's accomnt foru the saee
Devielopeent Bank atoruney's fees in
aeomnt, and smbseqmently, sent the check back to
the aeomnt of Ten Thomsand
petitioneru. Petitioneru, ho evieru, ruetmruned the check to
(P10,000.00) Pesos; bmt PBCoe is
PBCoe.
entitled to rueiebmruseeent/indeenity
On the otheru hand, Capitol comld not, in tmrun, fruoe PNB; and Philippine National
debit F. Abante Maruketing's accomnt since the lateru had Bank to be, in tmrun, rueiebmrused oru
alrueady ithdrua n the aeomnt of the check as of indeenifed by F. Abante Maruketing
Octoberu 15, 1981. Capitol somght claruifcation fruoe foru the saee aeomnt;
PBCoe and deeanded the rueocruediting of the aeomnt. 5.) The Comnteruclaies of
PBCoe follo ed smit by rueqmesting an explanation and PBCoe and PNB arue herueby
rueocruediting fruoe petitioneru. diseissed;
Since the deeands of Capitol erue not heeded, 6.) No pruonomnceeent as to
it fled a civiil smit ith the Regional Truial Comrut of Manila costs.
against PBCoe hich, in tmrun, fled a thirudoparuty
SO ORDERED. 1
coeplaint against petitioneru foru
rueiebmruseeent/indeenity ith ruespect to the claies of An appeal as interuposed beforue the
Capitol. Petitioneru, on its parut, fled a fomruthoparuty ruespondent Comrut of Appeals hich ruenderued its
coeplaint against F. Abante Maruketing. decision on Apruil 29, 1992, the decruetal porution of hich
rueads:
On Octoberu 3, 1989; the Regional Truial Comrut
ruenderued its decision the dispositivie porution of hich WHEREFORE, the jmdgeent
rueads: appealed fruoe is eodifed by
exeepting PBCoe fruoe liability to
WHEREFORE, jmdgeent is plaintiioappellee foru atoruney's fees
herueby ruenderued as follo s: and oruderuing PNB to honoru the check
1.) On plaintii's coeplaint, foru P97,650.00, ith interuest as
defendant Philippine Bank of declarued by the truial comrut, and pay
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

plaintiioappellee atoruney's fees of
P10,000.00. Afteru the check shall havie
been honorued by PNB, PBCoe shall
rueocruedit plaintiioappellee's accomnt
ith it ith the aeomnt. No
pruonomnceeent as to costs.
SO ORDERED. 2
A eotion foru rueconsideruation of the decision
as denied by the ruespondent Comrut in its ruesolmtion
dated Septeeberu 16, 1992 foru lack of eeruit. 3
Hence, petitioneru fled the instant petition
hich ruaises the follo ing issmes:
I (f) Oru hich adds a place of
WHETHER OR NOT AN ALaTERATION
OF THE SERIALa NUMBER OF A CHECK
IS A MATERIALa ALaTERATION UNDER
THE NEGOTIABLaE INSTRUMENTS
LaAW.
II
WHETHER OR NOT A CERTIFICATION
HEREIN ISSUED BY THE MINISTRY OF
EDUCATION CAN BE GIVEN WEIGHT
IN EVIDENCE.
III
WHETHER OR NOT A DRAWEE BANK
WHO FAILaED TO RETURN A CHECK
WITHIN THE TWENTY FOUR (24)
HOUR CLaEARING PERIOD MAY
RECOVER THE VALaUE OF THE CHECK
FROM THE COLaLaECTING BANK.
IV
WHETHER OR NOT IN THE ABSENCE
OF MALaICE OR ILaLa WILaLa PETITIONER
PNB MAY BE HELaD LaIABLaE FOR
ATTORNEY'S FEES. 4
We fnd no eeruit in the petition.
We shall frust deal ith the eiect of the
alteruation of the seruial nmeberu on the negotiability of
the check in qmestion.
Petitioneru anchorus its position on Section 125 of
the Negotiable Instrumeent Laa (ACT No. 2031) 5 hich
pruoviides:
KIMBUTAO NEGO SYLaLaABUS
133
SECTION 125. What
cionsttutes a material alteration. —
Any alteruation hich changes:
(a) The date;
(b) The sme payable, eitheru
foru pruincipal oru interuest;
(c) The tiee oru place of
payeent;
(d) The nmeberu oru the
ruelations of the paruties;
(e) The eedime oru cmruruency
in hich payeent is to be eade;
payeent herue no place of payeent
is specifed, oru any otheru change oru
addition hich alterus the eiect of the
instrumeent in any ruespect, is a
eateruial alteruation.
Petitioneru alleges that therue is no harud and fast
rumle in the interupruetation of the aforueqmoted pruoviision
of the Negotiable Instrumeents Laa . It eaintains that
mnderu Section 125(f), any change that alterus the eiect
of the instrumeent is a eateruial alteruation. 6
We do not agruee.
An alteruation is said to be eateruial if it alterus the
eiect of the instrumeent. 7 It eeans an mnamthoruized
change in an instrumeent that pmruporuts to eodify in any
ruespect the obligation of a paruty oru an mnamthoruized
addition of oruds oru nmeberus oru otheru changes to an
incoeplete instrumeent ruelating to the obligation of a
paruty. 8In otheru oruds, a eateruial alteruation is one
hich changes the itees hich arue rueqmirued to be
stated mnderu Section 1 of the Negotiable Instrumeents
Laa .
Section 1 of the Negotiable
Instrumeents Laa pruoviides:
SECTION 1. Fiorm iof
negiotable instruments. — An
instrumeent to be negotiable emst
conforue to the follo ing
rueqmirueeents:
(a) It emst be in ruiting and
signed by the eakeru oru drua eru;
ATTY. CLaAROS
 134

(b) Mmst contain an (8) Plaintii, ithomt consent

mnconditional pruoeise oru oruderu to pay
a sme cerutain in eoney;
(c) Mmst be payable on
deeand, oru at a fxed oru deterueinable
fmtmrue tiee;
(d) Mmst be payable to oruderu
oru to bearueru; and
(e) Wherue the instrumeent is
addruessed to a drua ee, he emst be
naeed oru otheru ise indicated theruein
ith rueasonable cerutainty.
In his book entitled "Pandect of Coeeerucial
Laa and Jmruisprumdence," Jmstice Jose C. Vitmg opines
that "an innocent alteruation (generually, changes on
itees otheru than those rueqmirued to be stated mnderu Sec.
1, N.I.La.) and spoliation (alteruations done by a struangeru)
ill not avioid the instrumeent, bmt the holderu eay
enforuce it only accoruding to its oruiginal tenoru." 9
Repruodmced heruemnderu arue soee exaeples of
eateruial and ieeateruial alteruations:
A. Material Alterations:
(1) Smbstitmting the oruds "oru
bearueru" foru "oruderu."
(2) Wruiting "pruotest aivied"
abovie blank indoruseeents.
(3) A change in the date fruoe
hich interuest is to rumn.
(4) A check as oruiginally
drua n as follo s: "Iruon Comnty Bank,
Cruystal Falls, Mich. Amg. 5, 1901. Pay
to G.La. oru oruderu $9 ffty cents CTR."
The inserution of the fgmrue 5 beforue
the fgmrue 9, the instrumeent being
otheru ise mnchanged.
(5) Adding the oruds " ith
interuest" ith oru ithomt a fxed ruate.
(6) An alteruation in the
eatmruity of a note, hetheru the tiee
foru payeent is therueby cmrutailed oru
extended.
(7) An instrumeent as
payable "Firust Nat'l Bank" the plaintii
added the orud "Maruion."
KIMBUTAO NEGO SYLaLaABUS
of the defendant, strumck omt the naee
of the defendant as payee and
inseruted the naee of the eakeru of
the oruiginal note.
(9) Struiking omt the naee of
the payee and smbstitmting that of the
peruson ho actmally discomnted the
note.
(10) Smbstitmting the addruess
of the eakeru foru the naee of a coo
eakeru. 10
B. Immaterial Alterations:
(1) Changing "I pruoeise to
pay" to "We pruoeise to pay", herue
therue arue t o eakerus.
(2) Adding the orud "annmal"
afteru the interuest clamse.
(3) Adding the date of
eatmruity as a earuginal notation.
(4) Filling in the date of the
actmal delivieruy herue the eakerus of a
note gavie it ith the date in blank,
"Jmly . . ."
(5) An alteruation of the
earuginal fgmrues of a note herue the
sme stated in oruds in the body
rueeained mnchanged.
(6) The inserution of the legal
ruate of interuest herue the note had a
pruoviision foru "interuest at . . . peru
cent."
(7) A pruinted forue of
pruoeissoruy note had on the earugin
the pruinted oruds, "Extended to . . ."
The holderu on oru afteru eatmruity ruote
in the blank space the oruds "May 1,
1913," as a rueferuence eeeoruandme
of a pruoeise eade by hie to the
pruincipal eakeru at the tiee the oruds
erue ruiten to extend the tiee of
payeent.
(8) Wherue therue as a blank
foru the place of payeent, flling in the
blank ith the place desirued.
ATTY. CLaAROS

(9) Adding to an indorusee's
naee the abbrueviiation "Cash" hen it
had been agrueed that the druaft shomld
be discomnted by the trumst coepany
of hich the indorusee as cashieru.
(10) The indoruseeent of a
note by a struangeru afteru its delivieruy to
the payee at the tiee the note as
negotiated to the plaintii.
(11) An extension of tiee
givien by the holderu of a note to the
pruincipal eakeru, ithomt the consent
of the smruety cooeakeru. 11
The case at the bench is mniqme in the sense
that hat as alterued is the seruial nmeberu of the check
in qmestion, an itee hich, it can rueadily be obseruvied, is
not an essential rueqmisite foru negotiability mnderu Section
1 of the Negotiable Instrumeents Laa . The
aforueeentioned alteruation did not change the ruelations
bet een the paruties. The naee of the drua eru and the
drua ee erue not alterued. The intended payee as the
saee. The sme of eoney dme to the payee rueeained
the saee. Despite these fndings, ho evieru, petitioneru
insists, that:
xxx xxx xxx
It is an accepted concept,
besides being a negotiable instrumeent
itself, that a TCAA check by its vieruy
natmrue is the eedime of exchange of
govieruneents (sic) instrumeentalities oru
agencies. And as (a) safety eeasmrue,
evieruy govieruneent office o(ru) agency
(is) assigned TCAA checks bearuing
diieruent nmeberu seruies.
A concruete exaeple is that of
the disbmruseeents of the Ministruy of
Edmcation and Cmltmrue. It is issmed by
the Bmrueam of Trueasmruy sizeable
bmndles of checks in booklet forue
ith seruial nmeberus diieruent fruoe
otheru govieruneent office oru agency.
No , foru fctitioms payee to smcceed in
its ealicioms intentions to defruamd the
govieruneent, all it needs to do is to
get hold of a TCAA Check and havie
the seruial nmeberus of porution (sic)
therueof changed oru alterued to eake it
KIMBUTAO NEGO SYLaLaABUS
135
appearu that the saee as issmed by
the MEC.
Otheru ise, stated, it is
thruomgh the seruial nmeberus that (a)
TCAA Check is deterueined to havie
been issmed by a paruticmlaru office oru
agency of the govieruneent. 12
xxx xxx xxx
Petitioneru's arugmeents fail to conviince. The
check's seruial nmeberu is not the sole indication of its
oruigin. As smccinctly fomnd by the Comrut of Appeals, the
naee of the govieruneent agency hich issmed the
smbject check as pruoeinently pruinted theruein. The
check's issmeru as therueforue insmfficiently identifed,
ruenderuing the rueferurual to the seruial nmeberu ruedmndant
and inconseqmential. Thms, e qmote ith favioru the
fndings of the ruespondent comrut:
xxx xxx xxx
If the pmrupose of the seruial
nmeberu is eeruely to identify the
issming govieruneent office oru agency,
its alteruation in this case had no
eateruial eiect hatsoevieru on the
integruity of the check. The identity of
the issming govieruneent office oru
agency as not changed therueby and
the aeomnt of the check as not
charuged against the accomnt of
anotheru govieruneent office oru agency
hich had no liability mnderu the
check. The iowner and issuer iof the
check is bioldly and clearly printed ion
its face, seciond line friom the tiop:
"MINISTRY OF EDUCATION AND
CULTURE," and beliow the name iof
the payee are the rubber-stamped
wiords: "Ministry iof Educ. & Culture."
These wiords are niot alleged tio have
been falsely ior fraudulently
intercalated intio the check. The
iownership iof the check is established
withiout the necessity iof reciourse tio
the serial number. Neitheru is therue
any pruoof that the aeomnt of the
check as eruruoneomsly charuged
against the accomnt of a govieruneent
office oru agency otheru than the
ATTY. CLaAROS
 136

Ministruy of Edmcation and Cmltmrue. check as not inclmded aeong those

Hence, the alteruation in the nmeberu rueqmisition by this Office fruoe the
of the check did not aiect oru change Bmrueam of Trueasmruy.
the liability of the Ministruy of
Veruy
Edmcation and Cmltmrue mnderu the
trumly
check and, therueforue, is ieeateruial.
yomrus
The genmineness of the aeomnt and
,
the signatmrues theruein of then Depmty
Ministeru of Edmcation Herueenegildo (SGD.)
C. Dmelao and of the ruesident MINRA
Amditoru, Penoeio C. Alviaruez arue not DO C.
challenged. Neitheru is the amthenticity BATON
of the diieruent codes appearuing GHINO
theruein qmestioned . . . . 13(Eephasis G
omrus.) Cashieru
III.14
Petitioneru, thms cannot ruefmse to accept the
check in qmestion on the gruomnd that the seruial nmeberu Petitioneru claies that evien if the amthoru of the
as alterued, the saee being an ieeateruial oru innocent cerutifcation issmed by the Ministruy of Edmcation and
one. Cmltmrue (MEC) as not pruesented, still the best eviidence
of the eateruial alteruation omld be the dispmted check
We no go to the second issme. It is petitioneru's
itself and the seruial nmeberu therueon. Petitioneru thms
smbeission that the cerutifcation issmed by Minruado C.
assails the ruefmsal of ruespondent comrut to givie eight to
Batonghinog, Cashieru III of the MEC clearuly sho s that
the cerutifcation becamse the amthoru therueof as not
the check as alterued. Said cerutifcation rueads:
pruesented to identify it and to be cruossoexaeined
J therueon. 15
m
We agruee ith the ruespondent comrut.
l
y The one ho signed the cerutifcation as not
pruesented beforue the truial comrut to pruovie that the said
2 docmeent as rueally the docmeent he prueparued and
2 that the signatmrue belo the said docmeent is his o n
, signatmrue. Neitheru did petitioneru pruesent an eye itness
to the execmtion of the qmestioned docmeent ho
1 comld possibly identify it. 16 Absent this pruoof, e
9 cannot rumle on the amthenticity of the contents of the
8 cerutifcation. Morueovieru, as e prueviiomsly eephasized,
5 therue as no eateruial alteruation on the check, the
TO WHOM IT MAY CONCERN: change of its seruial nmeberu not being smbstantial to its
negotiability.
This is to cerutify that
accoruding to the ruecoruds of this Office, Anent the thirud issme — hetheru oru not the
TCAA PNB Check No. SN7o3666223o3 drua ee bank eay still ruecovieru the vialme of the check
dated Amgmst 7, 1981 drua n in favioru fruoe the collecting bank evien if it failed to ruetmrun the
of F. Abante Maruketing in the aeomnt check ithin the t entyofomru (24) homru clearuing peruiod
of NINETY (S)EVEN THOUSAND SIX becamse the check as taeperued — smffice it to state
HUNDRED FIFTY PESOS ONLaY that since therue is no eateruial alteruation in the check,
(P97,650.00) as not issmed by this petitioneru has no ruight to dishonoru it and ruetmrun it to
Office noru rueleased to the payee PBCoe, the saee being in all ruespects negotiable.
conceruned. The seruies nmeberu of said

KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS


Ho evieru, the aeomnt of P10,000.00 as
atoruney's fees is herueby deleted. In theiru ruespectivie
decisions, the truial comrut and the Comrut of Appeals failed
to explicitly state the ruationale foru the said a arud. The
truial comrut eeruely rumled as follo s:
With ruespect to Capitol's
claie foru daeages consisting of
alleged loss of opporutmnity, this Comrut
fnds that Capitol failed to adeqmately
smbstantiate its claie. What Capitol
had pruesented as a selfoseruviing,
mnsmbstantiated and specmlativie
coepmtation of hat it allegedly
comld havie earuned oru ruealized erue it
not foru the debit eade by PBCoe
hich as truiggerued by the ruetmrun and
debit eade by PNB. Ho evieru, this
Comrut fnds that it omld be fairu and
rueasonable to iepose interuest at 12%
peru annme on the pruincipal aeomnt of
the check coepmted fruoe Octoberu 19,
1981 (the date PBCoe debited
Capitol's accomnt) mntil the aeomnt is
fmlly paid and reasionable attiorney's
fees. 17 (Eephasis omrus.)
And contruaruy to the Comrut of Appeal's
ruesolmtion, petitioneru mnaebigmomsly qmestioned beforue
it the a arud of atoruney's fees, assigning the lateru as
one of the eruruorus coeeited by the truial comrut. 18
The foruegoing is in conforueity ith the gmiding
pruinciples laid do n in a long line of cases and
rueiteruated ruecently in Cionsiolidated Bank & Trust
Ciorpioration (Siolidbank) v. Ciourt iof Appeals: 19
The a arud of atoruney's fees
lies ithin the discruetion of the comrut
and depends mpon the cirucmestances
of each case. Ho evieru, the discruetion
of the comrut to a arud atoruney's fees
mnderu Aruticle 2208 of the Civiil Code of
the Philippines deeands factmal, legal
and eqmitable jmstifcation, ithomt
hich the a arud is a conclmsion
ithomt a prueeise and iepruoperuly left
to specmlation and conjectmrue. It
becoees a viiolation of the
pruoscruiption against the ieposition of
a penalty on the ruight to litigate
(Universal Shipping Lines Inc. v.
KIMBUTAO NEGO SYLaLaABUS
137
Intermediate Appellate Ciourt, 188
SCRA 170 [1990]). The rueason foru the
a arud emst be stated in the text of
the comrut's decision. If it is stated only
in the dispositivie porution of the
decision, the saee shall be
disallo ed. As to the a arud of
atoruney's fees being an exception
ruatheru than the rumle, it is necessaruy
foru the comrut to eake fndings of fact
and la that omld bruing the case
ithin exception and jmstify the gruant
of the a arud (Refractiories
Ciorpioration iof the Philippines v.
Intermediate Appellate Ciourt, 176
SCRA 539).
WHEREFORE, prueeises considerued, except foru
the deletion of the a arud of atoruney's fees, the
decision of the Comrut of Appeals is herueby AFFIRMED.
2. METROPOLITAN BANK AND
TRUST COMPANY, pettioner, vs.
RENATO D. CABILZO, respiondent.
DECISION
CHICO-NAZARIO, J p:
Beforue this Comrut is a Petition foru Reviie
on Certiorari, fled by petitioneru Metruopolitan Bank and
Trumst Coepany (Metruobank) seeking to ruevieruse and set
aside the Decision 1 of the Comrut of Appeals dated 8
Maruch 2002 and its Resolmtion dated 26 Jmly 2002
affirueing the Decision of the Regional Truial Comrut (RTC)
of Manila, Bruanch 13 dated 4 Septeeberu 1998. The
dispositivie porution of the Comrut of Appeals Decision
rueads:
WHEREFORE, the assailed
decision dated Septeeberu 4, 1998 is
AFFIRMED ith eodifcations (sic)
that the a aruds foru exeeplaruy
daeages and atoruney's fees arue
herueby deleted.
ATTY. CLaAROS

Petitioneru Metruobank is a banking institmtion
dmly oruganized and existing as smch mnderu Philippine
la s. 2
Respondent Renato D. Cabilzo (Cabilzo) as one
of Metruobank's clients ho eaintained a cmruruent
accomnt ith Metruobank Pasong Taeo Bruanch. 3
On 12 Novieeberu 1994, Cabilzo issmed a
Metruobank Check No. 985988, payable to "CASH" and
postdated on 24 Novieeberu 1994 in the aeomnt of One
Thousand Pesos (P1,000.00). The check as drua n
against Cabilzo's Accomnt ith Metruobank Pasong Taeo
Bruanch mnderu Cmruruent Accomnt No. 618044873o3 and
as paid by Cabilzo to a cerutain Mru. Maruqmez, as his
sales coeeission. 4
Smbseqmently, the check as pruesented to
Westeont Bank foru payeent. Westeont Bank, in tmrun,
indorused the check to Metruobank foru appruopruiate
clearuing. Afteru the entruies therueon erue exaeined,
inclmding the aviailability of fmnds and the amthenticity
of the signatmrue of the drua eru, Metruobank clearued the
check foru encasheent in accorudance ith the Philippine
Clearuing Homse Coruporuation (PCHC) Rmles.
On 16 Novieeberu 1994, Cabilzo's ruepruesentativie
as at Metruobank Pasong Taeo Bruanch to eake soee
truansaction hen he as asked by a bank perusonnel if
Cabilzo had issmed a check in the aeomnt
of P91,000.00 to hich the forueeru rueplied in the
negativie. On the afterunoon of the saee date, Cabilzo
hieself called Metruobank to rueiteruate that he did not
issme a check in the aeomnt of P91,000.00 and
rueqmested that the qmestioned check be ruetmruned to
hie foru vieruifcation, to hich Metruobank coeplied. 5
Upon rueceipt of the check, Cabilzo discovierued
that Metruobank Check No. 985988 hich he issmed on
12 Novieeberu 1994 in the aeomnt of P1,000.00 as
alterued toP91,000.00 and the date 24 November
1994 as changed to 14 November 1994. 6
Hence, Cabilzo deeanded that Metruobank rueo
cruedit the aeomnt of P91,000.00 to his accomnt.
Metruobank, ho evieru, ruefmsed rueasoning that it has to
rueferu the eateru frust to its Laegal Diviision foru appruopruiate
action. Repeated vierubal deeands follo ed bmt
Metruobank still failed to rueocruedit the aeomnt of
P91,000.00 to Cabilzo's accomnt. 7
On 30 Jmne 1995, Cabilzo, thrum comnsel, fnally
sent a leteruodeeand 8 to Metruobank foru the payeent
KIMBUTAO NEGO SYLaLaABUS
138
of P90,000.00, afteru dedmcting the oruiginal vialme of the
check in the aeomnt of P1,000.00. Smch ruiten deeand
not ithstanding, Metruobank still failed oru ruefmsed to
coeply ith its obligation. IcaHCS
Conseqmently, Cabilzo institmted a civiil action
foru daeages against Metruobank beforue the RTC of
Manila, Bruanch 13. In his Coeplaint docketed as Civiil
Case No. 95o75651, Renatio D. Cabilzio v. Metriopiolitan
Bank and Trust Ciompany, Cabilzo pruayed that in
addition to his claie foru rueiebmruseeent, actmal and
eorual daeages plms costs of the smit be a aruded in his
favioru. 9
Foru its parut, Metruobank comnterued that mpon
the rueceipt of the said check thruomgh the PCHC on 14
Novieeberu 1994, it exaeined the genmineness and the
amthenticity of the drua eru's signatmrue appearuing
therueon and the technical entruies on the check inclmding
the aeomnt in fgmrues and in oruds to deterueine if
therue erue alteruations, eruasmrues, smperuiepositions oru
interucalations therueon, bmt none as noted. Afteru
vieruifying the amthenticity and pruopruiety of the aforuesaid
entruies, inclmding the indoruseeent of the collecting
bank located at the dorusal side of the check hich
stated that, "all pruioru indoruseeents and lack of
indoruseeent gmaruanteed," Metruobank clearued the
check. 10
Anent therueto, Metruobank claieed that as a
collecting bank and the last indoruseru, Westeont Bank
shomld be held liable foru the vialme of the check.
Westeont Bank indorused the check as the an
mnqmalifed indoruseru, by viirutme of hich it assmeed the
liability of a generual indoruseru, and thms, aeong otherus,
aruruanted that the instrumeent is genmine and in all
ruespect hat it pmruporuts to be.
In addition, Metruobank, in tmrun, claieed that
Cabilzo as parutly ruesponsible in leaviing spaces on the
check, hich, eade the fruamdmlent inserution of the
aeomnt and fgmrues therueon, possible. On accomnt of his
negligence in the prueparuation and issmance of the check,
hich accoruding to Metruobank, as the pruoxieate
camse of the loss, Cabilzo cannot therueafteru claie
indeenity by viirutme of the doctruine of eqmitable
estoppel.
Thms, Metruobank deeanded fruoe Cabilzo, foru
payeent in the aeomnt of P100,000.00 hich
ruepruesents the cost of litigation and atoruney's fees, foru
allegedly bruinging a fruivioloms and baseless smit. 11
ATTY. CLaAROS

On 19 Apruil 1996, Metruobank fled a ThirudoParuty
Coeplaint 12 against Westeont Bank on accomnt of its
mnqmalifed indoruseeent staeped at the dorusal side of
the check hich the forueeru ruelied mpon in clearuing hat
tmruned omt to be a eateruially alterued check.
Smbseqmently, a Motion to Diseiss 13 the Thirudo
Paruty Coeplaint as then fled by Westeont bank
becamse anotheru case inviolviing the saee camse of
action as pending beforue a diieruent comrut. The said
case aruose fruoe an action foru rueiebmruseeent fled by
Metruobank beforue the Arubitruation Coeeitee of the
PCHC against Westeont Bank, and no the smbject of a
Petition foru Reviie beforue the RTC of Manila, Bruanch
19.
In an Oruderu 14 dated 4 Februmaruy 1997, the truial
comrut gruanted the Motion to Diseiss the ThirudoParuty
Coeplaint on the gruomnd of lits pendenta.
On 4 Septeeberu 1998, the RTC ruenderued a
Decision 15 in favioru of Cabilzo and therueby oruderued
Metruobank to pay the sme of P90,000.00, the aeomnt
of the check. In struessing the fdmciaruy natmrue of the
ruelationship bet een the bank and its clients and the
negligence of the drua ee bank in failing to detect an
apparuent alteruation on the check, the truial comrut oruderued
foru the payeent of exeeplaruy daeages, atoruney's fees
and cost of litigation. The dispositivie porution of the
Decision rueads:
WHEREFORE, jmdgeent is
ruenderued oruderuing defendant
Metruopolitan Bank and Trumst
Coepany to pay plaintii Renato
Cabilzo the sme of P90,000 ith legal
interuest of 6 perucent peru annme fruoe
Novieeberu 16, 1994 mntil payeent is
eade plms P20,000 atoruney's fees,
exeeplaruy daeages of P50,000, and
costs of the smit. 16
Aggruievied, Metruobank appealed the advieruse
decision to the Comrut of Appeals rueiteruating its prueviioms
arugmeent that as the last indoruseru, Westeont Bank
shall bearu the loss occasioned by the fruamdmlent
alteruation of the check. Elaboruating, Metruobank
eaintained that by rueason of its mnqmalifed
indoruseeent, Westeont Bank aruruanted that the check
in qmestion is genmine, vialid and smbsisting and that
mpon pruesenteent the check shall be accepted
accoruding to its tenoru. EDACSa
KIMBUTAO NEGO SYLaLaABUS
139
Evien eorue, Metruobank arugmed that in clearuing
the check, it as not rueeiss in the peruforueance of its
dmty as the drua ee bank, bmt ruatheru, it exerucised the
highest degruee of diligence in accorudance ith the
generually accepted banking pruactice. It fmrutheru insisted
that the entruies in the check erue ruegmlaru and amthentic
and alteruation comld not be deterueined evien mpon close
exaeination.
In a Decision 17 dated 8 Maruch 2002, the Comrut
of Appeals affirueed ith eodifcation the Decision of
the comrut a quio, sieilaruly fnding Metruobank liable foru
the aeomnt of the check, ithomt pruejmdice, ho evieru,
to the omtcoee of the case bet een Metruobank and
Westeont Bank hich as pending beforue anotheru
truibmnal. The decruetal porution of the Decision rueads:
WHEREFORE, the assailed
decision dated Septeeberu 4, 1998 is
AFFIRMED ith the eodifcations (sic)
that the a aruds foru exeeplaruy
daeages and atoruney's fees arue
herueby deleted. 18
Sieilaruly illofated as Metruobank's Motion foru
Reconsideruation hich as also denied by the appellate
comrut in its Resolmtion 19 issmed on 26 Jmly 2002, foru lack
of eeruit.
Metruobank no poses beforue this Comrut this
sole issme:
THE HONORABLaE COURT OF APPEALaS
GRAVELaY ERRED IN HOLaDING
METROBANK, AS DRAWEE BANK,
LaIABLaE FOR THE ALaTERATIONS ON
THE SUBJECT CHECK BEARING THE
AUTHENTIC SIGNATURE OF THE
DRAWER THEREOF.
We ruesolvie to deny the petition.
An alteruation is said to be eateruial if it changes
the eiect of the instrumeent. It eeans that an
mnamthoruized change in an instrumeent that pmruporuts to
eodify in any ruespect the obligation of a paruty oru an
mnamthoruized addition of oruds oru nmeberus oru otheru
change to an incoeplete instrumeent ruelating to the
obligation of a paruty. 20In otheru oruds, a eateruial
alteruation is one hich changes the itees hich arue
rueqmirued to be stated mnderu Section 1 of the Negotiable
Instrumeents Laa .
ATTY. CLaAROS

Section 1 of the Negotiable Instrumeents Laa
pruoviides:
Section 1. Forue of negotiable
instrumeents. — An instrumeent to be
negotiable emst conforue to the
follo ing rueqmirueeents:
(a) It emst be in ruiting and
signed by the eakeru
oru drua eru;
(b) Mmst contain an
mnconditional
pruoeise oru oruderu to
pay a sme cerutain in
eoney;
(c) Mmst be payable on
deeand oru at a fxed
deterueinable fmtmrue
tiee;
(d) Mmst be payable to oruderu
oru to bearueru; and
(e) Wherue the instrumeent is
addruessed to a
drua ee, he emst be
naeed oru otheru ise
indicated theruein ith
rueasonable cerutainty.
Also perutinent is the follo ing pruoviision in the
Negotiable Instrumeent Laa hich states:
Section 125. What constitmtes
eateruial alteruation. — Any alteruation
hich changes:
(a) The date;
(b) The sme payable, eitheru
foru pruincipal oru
interuest;
(c) The tiee oru place of
payeent;
(d) The nmeberu oru the
ruelation of the
paruties; aIHCSA
KIMBUTAO NEGO SYLaLaABUS
140
(e) The eedime oru cmruruency
in hich payeent is
to be eade;
Oru hich adds a place of
payeent herue no place of payeent
is specifed, oru any otheru change oru
addition hich alterus the eiect of the
instrumeent in any ruespect is a
eateruial alteruation.
In the case at baru, the check as alterued so that
the aeomnt as incrueased
fruoe P1,000.00 to P91,000.00 and the date as
changed fruoe 24 November 1994 to14 November
1994. Apparuently, since the entruies alterued erue aeong
those enmeeruated mnderu Section 1 and 125, naeely,
the sme of eoney payable and the date of the check,
the instant contruovierusy therueforue sqmaruely falls ithin
the pmruviie of eateruial alteruation.
No , haviing laid the prueeise that the pruesent
petition is a case of eateruial alteruation, it is no
necessaruy foru ms to deterueine the eiect of a eateruially
alterued instrumeent, as ell as the ruights and obligations
of the paruties theruemnderu. The follo ing pruoviision of the
Negotiable Instrumeent Laa ill shed ms soee light in
thrueshing omt this issme:
Section 124. Alteruation of
instrumeent; eiect of. — Wherue a
negotiable instrumeent is eateruially
alterued ithomt the assent of all
paruties liable therueon, it is avoided,
except as against a paruty ho has
hieself made, authorized,
and assented to the
alteraton and subsequent indorsers.
Bmt hen the instrumeent has
been eateruially alterued and is in the
hands of a holderu in dme comruse not a
paruty to the alteruation, he eay
enforuce the payeent therueof
accoruding to its oruiginal tenoru.
(Eephasis omrus.)
Indmbitably, Cabilzo as not the one ho eade
noru amthoruized the alteruation. Neitheru did he assent to
the alteruation by his expruess oru ieplied acts. Therue is no
sho ing that he failed to exerucise smch rueasonable
degruee of diligence rueqmirued of a prumdent ean hich
comld havie otheru ise prueviented the loss. As coruruectly
ATTY. CLaAROS

rumled by the appellate comrut, Cabilzo as nevieru rueeiss
in the prueparuation and issmance of the check, and therue
erue no indicia of eviidence that omld pruovie otheru ise.
Indeed, Cabilzo placed asteruisks beforue and afteru the
aeomnt in oruds and fgmrues in oruderu to forue arun the
smbseqment holderus that nothing follo s beforue and
afteru the aeomnt indicated otheru than the one specifed
bet een the asteruisks.
The degruee of diligence rueqmirued of a
rueasonable ean in the exerucise of his tasks and the
peruforueance of his dmties has been faithfmlly coeplied
ith by Cabilzo. In fact, he as aruy enomgh that he
flled ith asteruisks the spaces bet een and afteru the
aeomnts, not only those stated in oruds, bmt also those
in nmeeruical fgmrues, in oruderu to pruevient any fruamdmlent
inserution, bmt mnforutmnately, the check as still
smccessfmlly alterued, indorused by the collecting bank,
and clearued by the drua ee bank, and encashed by the
perupetruatoru of the fruamd, to the daeage and pruejmdice
of Cabilzo.
Veruily, Metruobank cannot lightly iepmte that
Cabilzo as negligent and is therueforue prueviented fruoe
asseruting his ruights mnderu the doctruine of eqmitable
estoppel hen the facts on ruecorud arue barue of eviidence
to smpporut smch conclmsion. The doctruine of eqmitable
estoppel states that hen one of the t o innocent
perusons, each gmiltless of any intentional oru eorual
ruong, emst smieru a loss, it emst be borune by the one
hose eruruoneoms condmct, eitheru by oeission oru
coeeission, as the camse of injmruy. 21 Metruobank's
rueliance on this dictum, is eisplaced. Foru one,
Metruobank's ruepruesentation that it is an innocent paruty
is fiesy and eviidently, eisleading. At the saee tiee,
Metruobank cannot assevieruate that Cabilzo as
negligent and this negligence as the pruoxieate
camse 22 of the loss in the absence of evien a scintilla
pruoof to bmtruess smch claie. Negligence is not
pruesmeed bmt emst be pruovien by the one ho alleges
it. 23
Undombtedly, Cabilzo as an innocent paruty in
this instant contruovierusy. He as jmst an orudinaruy
bmsinessean ho, in oruderu to facilitate his bmsiness
truansactions, entrumsted his eoney ith a bank, not
kno ing that the lateru omld yield a smbstantial
aeomnt of his deposit to fruamd, foru hich Cabilzo can
nevieru be famlted. CTHaSD
We nevieru fail to struess the rueearukable
signifcance of a banking institmtion to coeeerucial
KIMBUTAO NEGO SYLaLaABUS
141
truansactions, in paruticmlaru, and to the comntruy's
econoey in generual. The banking systee is an
indispensable institmtion in the eoderun oruld and plays
a viital ruole in the econoeic life of evieruy civiilized nation.
Whetheru as eerue passivie entities foru the safekeeping
and saviing of eoney oru as activie instrumeents of
bmsiness and coeeeruce, banks havie becoee an
mbiqmitoms pruesence aeong the people, ho havie coee
to ruegarud thee ith ruespect and evien gruatitmde and,
eost of all, confdence. 24
Thms, evien the hmeble ageoearuneru does not
hesitate to entrumst his life's saviings to the bank of his
choice, kno ing that they ill be safe in its cmstody and
ill evien earun soee interuest foru hie. The orudinaruy
peruson, ith eqmal faith, msmally eaintains a eodest
checking accomnt foru secmruity and convienience in the
setling of his eonthly bills and the payeent of orudinaruy
expenses. As foru a bmsinessean like the ruespondent, the
bank is a trumsted and activie associate that can help in
the rumnning of his aiairus, not only in the forue of loans
hen needed bmt eorue often in the condmct of theiru
dayotooday truansactions like the issmance oru encasheent
of checks. 25
In evieruy case, the depositoru expects the bank to
trueat his accomnt ith the mteost fdelity, hetheru smch
accomnt consists only of a fe hmndrued pesos oru of
eillions. The bank emst ruecorud evieruy single truansaction
accmruately, do n to the last centavio, and as pruoeptly
as possible. This has to be done if the accomnt is to
ruefect at any givien tiee the aeomnt of eoney the
depositoru can dispose of as he sees ft, confdent that
the bank ill delivieru it as and to hoeevieru he
diruects. 26
The point is that as a bmsiness aiected ith
pmblic interuest and becamse of the natmrue of its
fmnctions, the bank is mnderu obligation to trueat the
accomnts of its depositorus ith eeticmloms carue, al ays
haviing in eind the fdmciaruy natmrue of theiru ruelationship.
The appruopruiate degruee of diligence rueqmirued of a bank
emst be a high degruee of diligence, if not the mteost
diligence. 27
In the pruesent case, it is obviioms that
Metruobank as rueeiss in that dmty and viiolated that
ruelationship. As obseruvied by the Comrut of Appeals, therue
arue eateruial alteruations on the check that arue viisible to
the naked eye. Thms:
ATTY. CLaAROS

. . . The nmeberu "1" in the
date is clearuly ieposed on a hite
fgmrue in the shape of the nmeberu "2".
The appellant's eeployees ho
exaeined the said check shomld havie
like ise been pmt on gmarud as to hy
at the end of the aeomnt in
oruds, i.e., afteru the orud "ONLaY",
therue arue 4 asteruisks, hile at the
beginning of the line oru beforue said
phruase, therue is none, evien as 4
asteruisks havie been placed beforue
and afteru the orud "CASH" in the
space foru payee. In addition, the 4
asteruisks beforue the oruds "ONE
THOUSAND PESOS ONLaY" havie
noticeably been eruased ith typing
coruruection paperu, leaviing hite
earuks, ovieru hich the orud "NINETY"
as smperuieposed. The saee can be
said of the nmeerual "9" in the aeomnt
"91,000", hich is smperuieposed ovieru
a hitish earuk, obviiomsly an eruasmrue,
in liem of the asteruisk hich as
deleted to inserut the said fgmrue. The
appellant's eeployees shomld havie
again noticed hy only 2 asteruisks
erue placed beforue the aeomnt in
fgmrues, hile 3 asteruisks erue placed
afteru smch aeomnt. The orud
"NINETY" is also typed diieruently and
ith a lighteru ink, hen coeparued
ith the oruds "ONE THOUSAND
PESOS ONLaY." The leterus of the orud
"NINETY" arue like ise a litle biggeru
hen coeparued ith the leterus of
the oruds "ONE THOUSAND PESOS
ONLaY". 28
Smrupruisingly, ho evieru, Metruobank failed to
detect the abovie alteruations hich comld not escape the
atention of evien an orudinaruy peruson. This negligence
as exacerubated by the fact that, as fomnd by the truial
comrut, the check in qmestion as exaeined by the cash
cmstodian hose fmnctions do not inclmde the
exaeinations of checks indorused foru payeent against
drua eru's accomnts. 29 Obviiomsly, the eeployee allo ed
by Metruobank to exaeine the check as not vieruse and
coepetent to handle smch dmty. These factmal fndings
KIMBUTAO NEGO SYLaLaABUS
142
of the truial comrut is conclmsivie mpon this comrut especially
hen smch fndings as affirueed the appellate comrut. 30
Apruopos therueto, e need to rueiteruate that by
the vieruy natmrue of theiru oruk the degruee of
ruesponsibility, carue and trumst oruthiness expected of
theiru eeployees and officials is faru beteru than those of
orudinaruy cleruks and eeployees. Banks arue expected to
exerucise the highest degruee of diligence in the selection
and smperuviision of theiru eeployees. 31
In addition, the bank on hich the check is
drua n, kno n as the drua ee bank, is mnderu struict
liability to pay to the oruderu of the payee in accorudance
ith the drua eru's instrumctions as ruefected on the face
and by the terues of the check. Payeent eade mnderu
eateruially alterued instrumeent is not payeent done in
accorudance ith the instrumction of the drua eru.
When the drua ee bank pays a eateruially
alterued check, it viiolates the terues of the check, as ell
as its dmty to charuge its client's accomnt only foru biona
fidedisbmruseeents he had eade. Since the drua ee
bank, in the instant case, did not pay accoruding to the
oruiginal tenoru of the instrumeent, as diruected by the
drua eru, then it has no ruight to claie rueiebmruseeent
fruoe the drua eru, emch less, the ruight to dedmct the
eruruoneoms payeent it eade fruoe the drua eru's accomnt
hich it as expected to trueat ith mteost fdelity.
Metruobank viigoruomsly asseruts that the entruies in
the check erue caruefmlly exaeined: The date of the
instrumeent, the aeomnt in oruds and fgmrues, as ell as
the drua eru's signatmrue, hich afteru vieruifcation, erue
fomnd to be pruoperu and amthentic and as thms clearued.
We arue not perusmaded. Metruobank's negligence
consisted in the oeission of that degruee of diligence
rueqmirued of a bank o ing to the fdmciaruy natmrue of its
ruelationship ith its client. Aruticle 1173 of the Civiil Code
pruoviides:
The famlt oru negligence of the
obligoru consists in the oeission of
that diligence hich is rueqmirued by the
natmrue of the obligation and
coruruesponds ith the cirucmestances
of the perusons, of the tiee and of the
place. . . . .
Beyond qmestion, Metruobank failed to coeply
ith the degruee rueqmirued by the natmrue of its bmsiness
ATTY. CLaAROS

as pruoviided by la and jmruisprumdence. If indeed it as
not rueeiss in its obligation, then it omld be
inconceiviable foru it not to detect an eviident alteruation
consideruing its viast kno ledge and technical experutise
in the intruicacies of the banking bmsiness. This Comrut is
not coepletely mna arue of banks' pruactices of
eeploying deviices and techniqmes in oruderu to detect
forugeruies, inserutions, interucalations, smperuiepositions
and alteruations in checks and otheru negotiable
instrumeents so as to safegmarud theiru amthenticity and
negotiability. Metruobank cannot no feign ignoruance
noru claie diligence; neitheru can it point its fngeru at the
collecting bank, in oruderu to eviade liability. IcaEDC
Metruobank arugmes that Westeont Bank, as the
collecting bank and the last indoruseru, shall bearu the loss.
Withomt rumling on the eateru bet een the drua ee bank
and the collecting bank, hich is alrueady mnderu the
jmruisdiction of anotheru truibmnal, e fnd that Metruobank
cannot ruely on smch indoruseeent, in clearuing the
qmestioned check. The coruollaruy liability of smch
indoruseeent, if any, is separuate and independent fruoe
the liability of Metruobank to Cabilzo.
The rueliance eade by Metruobank on Westeont
Bank's indoruseeent is clearuly inconsistent, if not totally
oiensivie to the dictum that being iepruessed ith
pmblic interuest, banks shomld exerucise the highest
degruee of diligence, if not mteost diligence in dealing
ith the accomnts of its o n clients. It o es the highest
degruee fdelity to its clients and shomld not therueforue
lightly ruely on the jmdgeent of otheru banks on occasions
herue its clients eoney erue inviolvie, no eateru ho
seall oru smbstantial the aeomnt at stake.
Metruobank's contention that it ruelied on the
struength of collecting bank's indoruseeent eay be
eeruely a laee excmse to eviade liability, oru eay be
indeed an actmal banking pruactice. In eitheru case, smch
act constitmtes a deploruable banking pruactice and comld
not be allo ed by this Comrut bearuing in eind that the
confdence of pmblic in generual is of paruaeomnt
ieporutance in banking bmsiness.
What is evien eorue deploruable is that, haviing
been inforueed of the alteruation, Metruobank did not
ieeediately rueocruedit the aeomnt that as eruruoneomsly
debited fruoe Cabilzo's accomnt bmt perueited a fmll
blo n litigation to pmsh thruomgh, to the pruejmdice of its
client. Any ay, Metruobank is not left ith no ruecomruse
foru it can still rumn afteru the one ho eade the alteruation
oru ith the collecting bank, hich it had alrueady done. It
KIMBUTAO NEGO SYLaLaABUS
143
bearus ruepeating that the ruecoruds arue barue of eviidence to
pruovie that Cabilzo as negligent. We fnd no jmstifable
rueason therueforue hy Metruobank did not ieeediately
rueiebmruse his accomnt. Smch ineptness coees ithin the
concept of anton eanneru conteeplated mnderu the
Civiil Code hich aruruants the ieposition of exeeplaruy
daeages, "by ay of exaeple oru coruruection foru the
pmblic good," in the oruds of the la . It is expected that
this rumling ill seruvie as a sterun aruning in oruderu to deteru
the ruepetition of sieilaru acts of negligence, lest the
confdence of the pmblic in the banking systee be
fmrutheru eruoded. 32
WHEREFORE, prueeises considerued, the instant
Petition is DENIED. The Decision dated 8 Maruch 2002
and the Resolmtion dated 26 Jmly 2002 of the Comrut of
Appeals arue AFFIRMED ith eodifcation that
exeeplaruy daeages in the aeomnt of P50,000.00 be
a aruded. Costs against the petitioneru.
SO ORDERED.
3. ENRIQUE P.
MONTINOLA, plainti-appellant,
vs. THE PHILIPPINE NATIONAL
BANK, ET AL., defendants-
appellees.
SYLLABUS
1. NEGOTIABLaE INSTRUMENT; MATERIALa
ALaTERATION WHICH DISCHARGES THE
INSTRUMENT. — On May 2, 1942, La in his capacity
as Pruoviincial Trueasmrueru of Misaeis Oruiental as
drua eru, issmed a check to R in the sme of P100,000,
on the Philippines National Bank as drua ee. R sold
P30,000 of the check to e foru P90,000 Japanese
Militaruy notes, of hich only P45,000 as paid by
M. The ruiting eade by R at the back of the check
as to the eiect that he as assigning only P30,000
of the vialme of the docmeent ith an instrumction to
the bank to pay P30,000 to e and to deposit the
balance to R's cruedit. This ruiting as, ho evieru,
eysteruiomsly obliteruated and in its place, a
smpposed indoruseeent appearuing on the back of the
check as eade. At the tiee of the truansferu of this
check to M abomt the last days of Deceeberu, 1944
oru the frust days of Janmaruy, 1845, the check as
long ovierudme by abomt 2o1/2 yearus. In Amgmst, 1947,
M institmted an action against the Philippine
ATTY. CLaAROS

National Bank and the Pruoviincial Trueasmrueru of
Misaeis Oruiental to collect the sme of P100,000,
the aeomnt of the aforuesaid check. Therue no
appearus on the face of said check the oruds in
paruenthesis "Agent, Phil. National Bank" mnderu the
signatmrue of La pmruporutedly sho ing that La issmed the
check as agent of the Philippine National
Bank. Held: The oruds "Agent, Phil. National Bank"
no appearuing on the face of the check erue added
oru placed in the instrumeent afteru it as issmed by
the Pruoviincial Trueasmrueru La to R. The check as
issmed by only as Pruoviincial Trueasmrue and as an
official of the Govieruneent, hich as mnderu
obligation to pruoviide the USAFE ith adviance
fmnds, and not as agent of the bank, hich had no
smch obligation. The addition of those oruds as
eade afteru the check had been truansferurued by R to
M. The inserution of the oruds "Agent, Phil. National
Bank," hich convieruts the bank fruoe a eerue
drua ee to a drua eru and therueforue changes its
liability, constitmtes a eateruial alteruation of the
instrumeent ithomt the consent of the paruties liable
therueon, and so discharuges the instrumeent.
2. ID.; INDORSEMENT OF PART OF AMOUNT
PAYABLaE, IS NOT NEGOTIATION OF INSTRUMENT
BUT MAY BE REGARDED AS MERE ASSIGNMENT. —
Wherue the indoruseeent of a check is only foru a parut
of the aeomnt payable, it is not legally negotiated
ithin the eeaning of section 32 of the Negotiable
Instrumeents Laa hich pruoviides that "the
indoruseeent emst be an indoruseeent of the entirue
instrumeent. An indoruseeent hich pmruporuts to
truansferu to the indoruse a parut only of the aeomnt
payable does not operuate as a negotiation of the
instrumeent." M eay, therueforue, not be ruegaruded as
an indoruse. At eost he eay be ruegaruded as a eerue
assignee of the P30,000 sold to hie by R, in hich
case, as smch Pruoviincial Trueasmrueru of Misaeis
Oruiental against R.
3. ID.; HOLaDER IN DUE COURSE; HOLaDER
WHO HAS TAKEN THE INSTRUMENT AFTER IT WAS
LaONG OVERDUE; ASSIGNEE IS NOT A PAYEE. —
Neitheru can M de considerued as a holderu in dme
comruse becamse section 52 of the Negotiable
Instrumeents Laa defnes a holderu in dme comruse as a
holderu ho taken the instrumeent mnderu cerutain
conditions, one of hich is that he becaee the
holderu beforue it as ovierudme. When M rueceivied the
check, it as long ovierudme. And, M is not evien a
KIMBUTAO NEGO SYLaLaABUS
144
holderu becamse section 191 of the saee la defnes
holderu as the payee oru indoruse of a bill oru note and
e is not a payee. Neitheru is he an indoruse, foru being
only indoruse he is considerued eeruely as an assignee.
4. ID.; INSTRUMENT ISSUED TO
DISTRIBUTION OFFICER OF USAFE, WHO HAS NO
RIGHT TO INDORSE IT PERSONALaLaY. — Wherue an
instrumeent as issmed to R not as a peruson bmt as
the disbmrusing officeru of the USAFE, he has no ruight
to indoruse the instrumeent perusonally and if he does,
the negotiation constitmtes a brueach of trumst, and he
truansferus nothing to the indoruse.
5. QUESTIONED DOCUMENTS;
DISCREPANCIES BETWEEN PHOTOSTATIC COPY
TAKEN BEFORE TEARING AND BURNING OF CHECK
AND PRESENT CONDITION THEREOF SHOW WORDS
IN QUESTION WERE INSERTED AFTER SAID TEARING
AND BURNING. — Recovieruy on a check, Exhibit A,
depended on the pruesence of the oruds "Agent,
Phil. National Bank" mnderu the signatmrue of La, at
tiee Exhibit A as drua n. Bmt the photostatic copy,
Exhibit B, adeitedly taken beforue Exhibit A as
bmruned and torun, sho ed earuked discruepancies
bet een Exhibits A and B as to the position of the
oruds in qmestion in ruelation to the oruds
"Pruoviincial Trueasmrueru". Held: The inferuence is plain
that the oruds "Agent, Phil. National Bank" erue
inseruted afteru the check as bmruned and torun.
DECISION
MONTEMAYOR, J p:
In Amgmst, 1947, Enruiqme P. Montinola fled
a coeplaint in the Comrut of Firust Instance of Manila
against the Philippine National Bank and the
Pruoviincial Trueasmrueru of Misaeis Oruiental to collect
the sme of P100,000, the aeomnt of Check No. 1382
issmed on May 2, 1942 by the Pruoviincial Trueasmrueru of
Misaeis Oruiental to Maruiano V. Raeos and
smpposedly indorused to Montinola. Afteru hearuing,
the comrut ruenderued a decision diseissing the
coeplaint ith costs against plaintiioappellant.
Montinola has appealed fruoe that decision diruectly
to this Comrut inasemch as the aeomnt in
contruovierusy exceeds P50,000.
ATTY. CLaAROS

Therue is no dispmte as to the follo ing facts.
In Apruil and May, 1942, Ubaldo D. Laaya as the
Pruoviincial Trueasmrueru of Misaeis Oruiental. As smch
Pruoviincial Trueasmrueru he as ex iofciio agent of the
Philippine National Bank bruanch in that pruoviince.
Maruiano V. Raeos oruked mnderu hie as assistant
agent in the bank bruanch aforueeentioned. In Apruil
of that yearu 1942, the cmruruency being msed in
Mindanao, paruticmlaruly Misaeis Oruiental and Laanao
hich had not yet been occmpied by the Japanese
inviading foruces, as the eeerugency cmruruency hich
had been issmed since Janmaruy, 1942 by the
Mindanao Eeerugency Cmruruency Boarud by amthoruity
of the late Pruesident Qmezon.
Abomt Apruil 26, 1942, thrum the
ruecoeeendation of Pruoviincial Trueasmrueru Laaya, his
assistant agent M. V. Raeos as indmcted into the
United States Arueed Foruces in the Faru East (USAFFE)
as disbmrusing officeru of an aruey diviision. As smch
disbmrusing officeru, M. V. Raeos on Apruil 30, 1942,
ent to the neighboruing Pruoviince of Laanao to
pruocmrue a cash adviance in the aeomnt of P800,000
foru the mse of the USAFFE in Cagayan de Misaeis.
Pedruo Encarunacion, Pruoviincial Trueasmrueru of Laanao
did not havie that aeomnt in cash. So, he gavie
Raeos P300,000 in eeerugency notes and a check
foru P500,000. On May 2, 1942 Raeos ent to the
office of Pruoviincial Trueasmrueru Laaya at Misaeis
Oruiental to encash the check foru P500,000 hich he
had rueceivied fruoe the Pruoviincial Trueasmrueru of
Laanao. Laaya did not havie enomgh cash to covieru the
check so he gavie Raeos P400,000 in eeerugency
notes and a check No. 1382 foru P100,000 drua n on
the Philippine National Bank. Accoruding to Laaya he
had prueviiomsly deposited P500,000 eeerugency
notes in the Philippine National Bank bruanch in
Cebm and he expected to havie the check issmed by
hie cashed in Cebm against said deposit.
Raeos had no opporutmnity to cash the
check becamse in the eviening of the saee day the
check as issmed to hie, the Japanese foruces
enterued the capital of Misaeis Oruiental, and on
Jmne 10, 1942, the USAFFE foruces to hich he as
atached smruruenderued. Raeos as eade a pruisoneru
of aru mntil Februmaruy 12, 1943, afteru hich, he as
rueleased and he ruesmeed his statms as a civiilian.
Abomt the last days of Deceeberu, 1944 oru
the frust days of Janmaruy, 1945, M. V. Raeos
allegedly indorused this check No. 1382 to Enruiqme P.
KIMBUTAO NEGO SYLaLaABUS
145
Montinola. The cirucmestances and conditions mnderu
hich the negotiation oru truansferu as eade arue in
contruovierusy.
Accoruding to Montinola's vierusion, soeetiee
in Jmne, 1944, Raeos, needing eoney ith hich to
bmy foodstmis and eedicine, oierued to sell hie the
check; to be smrue that it as genmine and
negotiable, Montinola, accoepanied by his agents
and by Raeos hieself, ent to see Pruesident
Carueona of the Philippine National Bank in Manila
abomt said check; that afteru exaeining it Pruesident
Carueona told hie that it as negotiable bmt that he
shomld not let the Japanese catch hie ith it
becamse possession of the saee omld indicate that
he as still aiting foru the ruetmrun of the Aeeruicans
to the Philippines; that he and Raeos fnally agrueed
to the sale of the check foru P850,000 Japanese
eilitaruy notes, payable in installeents; that of this
aeomnt, P450,000 as paid to Raeos in Japanese
eilitaruy notes in fvie installeents, and the balance
of P400,000 as paid in kind, naeely, fomru botles
of smlphatiasole, each botle containing 1,000
tablets, and each tablet vialmed at P100; that mpon
payeent of the fmll pruice, M. V. Raeos dmly
indorused the check to hie. This indoruseeent hich
no appearus on the back of the docmeent is
descruibed in detail by the truial comrut as follo s:
"The endoruseeent no
appearuing at the back of the check
(see Exhibit Ao1) eay be descruibed as
follo s: The oruds, 'pay to the oruderu
of ' — in rumbberu staep and in viiolet
coloru arue placed abomt one inch fruoe
the top. This is follo ed by the oruds
'Enruiqme P. Montinola' in type ruiting
hich is appruoxieately 5/8 of an inch
belo the staeped oruds 'pay to the
oruderu of'. Belo 'Enruiqme P.
Montinola', in type ruiting arue the
oruds and fgmrues also in type ruiting,
'517 Isabel Strueet' and abomt 1/8 of
an inch theruefruoe, the edges of the
check appearu to havie been bmruned,
bmt therue arue oruds staeped
apparuently in rumbberu staep hich,
accoruding to Montinola, arue a
facsieile of the signatmrue of Raeos.
Therue is a signatmrue hich apparuently
ATTY. CLaAROS

rueads 'M. V. Raeos' also in grueen ink
bmt eade in hand ruiting."
To the abovie descruiption e eay add that
the naee of M. V. Raeos is handpruinted in grueen
ink, mnderu the signatmrue. Accoruding to Montinola,
he asked Raeos to handpruint it becamse Raeos'
signatmrue as not clearu.
Raeos in his tmrun told the comrut that the
agrueeeent bet een hieself and Montinola
ruegaruding the truansferu of the check as that he as
selling only P30,000 of the check and foru this
rueason, at the back of the docmeent he ruote in
longhand the follo ing:
"Pay to the oruderu of Enruiqme
P. Montinola P30,000 only. The
balance to be deposited in the
Philippine National Bank to the cruedit
of M. V. Raeos."
Raeos fmrutheru said that in exchange foru this
assigneent of P30,000 Montinola omld pay hie
P90,000 in Japanese eilitaruy notes bmt that
Montinola gavie hie only t o checks of P20,000 and
P25,000, leaviing a balance mnpaid of P45,000. In
this he as coruruoboruated by Aty. Sieeon Raeos Jru.
ho told the comrut that the agrueeeent bet een
Raeos and Montinola as that the lateru, foru the
sale to hie of P30,000 of the check, as to pay
Raeos P90,000 in Japanese eilitaruy notes; that
hen the frust check foru P20,000 as issmed by
Montinola, he (Sieeon) prueparued a docmeent
eviidencing said payeent of P20,000; that hen the
second check foru P25,000 as issmed by Montinola,
he (Sieeon) prueparued anotheru docmeent ith t o
copies, one foru Montinola and the otheru foru Raeos,
both signed by Montinola and M. V. Raeos,
eviidencing said payeent, ith the mnderustanding
that the balance of P45,000 omld be paid in a fe
days.
KIMBUTAO NEGO SYLaLaABUS
146
The indoruseeent oru ruiting descruibed by M.
V. Raeos hich had been ruiten by hie at the
back of the check, Exhibit A, does not no appearu at
the back of said check. What appearus therueon is the
indoruseeent testifed to by Montinola and
descruibed by the truial comrut as ruepruodmced abovie.
Beforue going into a discmssion of the eeruits of the
vierusion givien by Raeos and Montinola as to the
indoruseeent oru ruiting at the back of the check, it is
ell to givie a fmrutheru descruiption of it as e shall do
lateru.
When Montinola fled his coeplaint in 1947
he stated theruein that the check had been lost, and
so in liem therueof he fled a smpposed photostatic
copy. Ho evieru, at the truial, he pruesented the check
itself and had its face earuked Exhibit A and the back
therueof Exhibit Ao1. Bmt the check is badly
emtilated, bloted, torun and parutly bmruned, and its
condition can best be apprueciated by seeing it.
Romghly, it eay be stated that looking at the face of
the check (Exhibit A) e see that the left thirud
porution of the paperu has been cmt oi
perupendicmlaruly and sevierued fruoe the rueeaining
2/3 porution; a truiangmlaru porution of the mpperu ruight
hand coruneru of said rueeaining 2/3 porution has been
sieilaruly cmt oi and sevierued, and to keep and atach
this truiangmlaru porution and the ruectangmlaru 1/3
porution to the ruest of the docmeent, the entirue
check is pasted on both sides ith cellophane; the
edges of the sevierued porutions as ell as of the
rueeaining eajoru porution, herue cmt bearu truaces of
bmruning and searuing; therue is a big blot ith
indelible ink abomt the ruight eiddle porution, hich
seees to havie penetruated to the back of the check
(Exhibit Ao1), hich back bearus a larugeru seearu ruight
mnderu the blot, bmt not as black and sharup as the
blot itself; fnally, all this tearuing, bmruning, bloing
and seearuing and pasting of the check ruenderus it
difficmlt if not iepossible to ruead soee of the oruds
and fgmrues on the check. In explanation of the
emtilation of the check Montinola told the comrut
that sevierual eonths afteru indorusing and delivieruing
the check to hie, Raeos deeanded the ruetmrun of
the check to hie, thrueatening Montinola ith bodily
harue, evien death by hieself oru his gmeruruilla foruces if
he did not ruetmrun said check, and that in oruderu to
jmstify the nonodelivieruy of the docmeent and to
discomruage Raeos fruoe geing it back, he
(Montinola) had to ruesorut to the emtilation of the
docmeent.
ATTY. CLaAROS

As to hat as rueally ruiten at the back of
the check hich Montinola claies to be a fmll
indoruseeent of the check, e agruee ith the truial
comrut that the oruiginal ruiting of Raeos on the back
of the check as to the eiect that he as assigning
only P30,000 of the vialme of the docmeent and that
he as instrumcting the bank to deposit to his cruedit
the balance. This ruiting as in soee eysteruioms
ay obliteruated, and in its place as placed the
pruesent indoruseeent appearuing therueon. Said
pruesent indoruseeent occmpies a good porution of the
back of the check. It has alrueady been descruibed in
detail. As to ho said pruesent indoruseeent caee to
be ruiten, the cirucmestances smruruomnding its
prueparuation, the smpposed paruticipation of M. V.
Raeos in it and the ruiting oruiginally appearuing on
the ruevieruse side of the check, Exhibit Ao1, e qmote
ith appruovial hat the truial comrut pruesided ovieru by
Jmdge Conruado V. Sanchez, in its elloprueparued
decision, says on these points:
"The alleged indoruseeent:
'Pay to the oruderu of Enruiqme P.
Montinola the aeomnt of P30,000
only. The balance to be deposited to
the cruedit of M. V. Raeos', signed by
M. V. Raeos — accoruding to the lateru
— does not no appearu at the back
of the check. A diieruent indoruseeent,
as aforuesaid, no appearus.
"Had Montinola rueally paid in
fmll the sme of P850,000 in Japanese
Militaruy Notes as consideruation foru
the check? The follo ing obseruviations
arue in point:.
"(a) Accoruding to plaintii's
itness Gruegoruio A. Corutado, the ovial
line in viiolet, enclosing 'P.' of the
oruds 'Enruiqme P. Montinola' and the
line in the forue of cane handle
cruossing the orud 'strueet' in the
oruds and fgmrues '517 Isabel Strueet'
in the endoruseeent Exhibit Ao1, arue
'mnmsmal' to hie, and that as faru as he
comld rueeeeberu this ruiting did not
appearu on the instrumeent and he had
no kno ledge as to ho it happened
to be therue. Obviiomsly Corutado had
no ruecollection as to ho smch earuks
KIMBUTAO NEGO SYLaLaABUS
147
evieru erue staeped at the back of the
check.
"(b) Again Corutado, speaking
of the endoruseeent as it no appearus
at the back of the check (Exh. Ao1)
stated that Raeos type ruote these
oruds omtside of the prueeises of
Montinola, that is, in a nearuby homse.
Montinola, on the otheru hand,
testifed that Raeos type ruote the
oruds 'Enruiqme P. Montinola, 517
Isabel Strueet', in his o n homse.
Speaking of the rumbberu staep msed at
the back of the check and hich
pruodmced the oruds 'pay to the oruderu
of', Corutado stated that hen he
(Corutado), Ataderuo, Montinola and
Raeos ruetmruned in gruomp to the homse
of Montinola, the rumbberu staep as
alrueady in the homse of Montinola,
and it as on the table of the mpperu
fooru of the homse, togetheru ith the
staep pad msed to staep the saee.
Montinola, on the otheru hand,
testifed that Raeos caruruied in his
pocket the said rumbberu staep as ell
as the ink pad, and staeped it in his
homse.
"The mnmsmally big space
occmpied by the indoruseeent on the
back of the check and the
discruepancies in the vierusions of
Montinola and his itness Corutado
jmst noted, crueate dombts as to
hetheru oru not rueally Raeos eade
the indoruseeent as it no appearus at
the back of Exhibit A. One thing
difficmlt to mnderustand is hy Raeos
shomld go into the laboruioms task of
placing the rumbberu staep 'Pay to the
oruderu of' and afteru aruds eovie to the
type ruiteru and ruite the oruds
'Enruiqme P. Montinola' and '517 Isabel
Strueet', and fnally sign his naee too
faru belo the eain indoruseeent.
"(c) Anotheru cirucmestance
hich bearus heaviily mpon the claie of
plaintii Montinola that he acqmirued
the fmll vialme of the check and paid
ATTY. CLaAROS

the fmll consideruation therueforu is the
pruesent condition of said check. It is
no so mnclean and discolorued; it is
pasted in cellophane, bloted ith ink
on both sides torun into thruee paruts,
and ith porutions therueof bmruned o all
done by plaintii, the alleged o neru
therueof.
"The acts done by the vieruy
plaintii on a docmeent so ieporutant
and vialmable to hie, and hich
accoruding to hie inviolvies his
life savings, appruoxieate intentional
cancellation. The only rueason
advianced by plaintii as to hy he
torue the check, bmruned the torun edges
and bloted omt the ruegistruation at the
back, is fomnd in the follo ing: That
Raeos caee to his homse, arueed ith
a rueviolvieru, thrueatened his life and
deeanded fruoe hie the ruetmrun of the
check; that hen he inforueed Raeos
that he did not havie it in the homse,
bmt in soee deposit omtside therueof
and that Raeos pruoeised to ruetmrun
the next day; that the saee night he
torue the check into thruee paruts,
bmruned the sides ith a paruruafn
candle to sho truaces of bmruning; and
that mpon the ruetmrun of Raeos the
next day he sho ed the t o paruts of
the check, the truiangle on the ruight
mpperu parut and the torun piece on the
left parut, and mpon seeing the
condition therueof Raeos did not
botheru to get the check back. He also
said that he placed the blots in
indelible ink to pruevient Raeos — if he
omld be foruced to smruruenderu the
eiddle parut of the check — fruoe
seeing that it as ruegisterued in the
Generual Amditing Office.
"Conceding at the eoeent
these facts to be trume, the qmestion is:
Why shomld Montinola be afruaid of
Raeos? Montinola claies that Raeos
ent therue abomt Apruil, 1945, that is,
dmruing liberuation. If he believied he
as standing by his ruights, he comld
KIMBUTAO NEGO SYLaLaABUS
148
havie vieruy ell somght police
pruotection oru truansferurued to soee
place herue Raeos comld not botheru
hie. And then, if rueally Raeos did not
havie anything eorue to do ith this
check foru the rueason that Montinola
had obtained in fmll the aeomnt
therueof, therue comld not be any
rueason hy Raeos shomld havie
thrueatened Montinola as stated by
the lateru. Underu the cirucmestances,
the eost logical conclmsion is that
Raeos anted the check at all costs
becamse Montinola did not acqmirue
the check to smch an extent that it
boruderus on intentional cancellation
therueof (see Sections 119o 123
Negotiable Instrumeents Laa ) therue is
ruooe to believie that Montinola did
not havie so emch inviesteents in that
check as to havie adopted an ' hat do
I carue?' aitmde.
"And therue is the
cirucmestance of the alleged loss of
the check. At the tiee of the fling of
the coeplaint the check as allegedly
lost, so emch so that a photostatic
copy therueof as eeruely atached to
the coeplaint (see paruagruaph 7 of the
coeplaint). Yet, dmruing the truial the
oruiginal check Exhibit A as pruodmced
in comrut.
"Bmt a coeparuison bet een
the photostatic copy and the oruiginal
check ruevieals discruepancies bet een
the t o. The condition of the check as
it as pruodmced is smch that it as
parutially bmruned, parutially bloted,
badly emtilated, discolorued and
pasted ith cellophane. What is
oruse is that Montinola's excmse as to
ho it as lost, that it as eixed mp
ith homsehold eiects is not
plamsible, consideruing the fact that it
inviolvies his life saviings, and that
beforue the alleged loss, he took
extrueee pains and pruecamtions to
savie the check fruoe the possible
ruaviages of the aru, had it
ATTY. CLaAROS

photogruaphed, ruegisterued said check
ith the Generual Amditing Office and
he kne that Raeos, since liberuation,
as not afteru the possession of that
check.
"(d) It seees that Montinola
as not so smrue as to hat he had
testifed to in rueferuence to the
consideruation he paid foru the check.
In comrut he testifed that he paid
P450,000 in cash fruoe Jmne to
Deceeberu 1944, and P400,000 oruth
of smlphatiazole in Janmaruy 1945 to
coeplete the alleged consideruation of
P850,000. When Montinola testifed
this ay in comrut, obviiomsly he
ovierulooked a leteru he ruote to the
pruoviincial trueasmrueru of Cagayan,
Oruiental Misaeis, dated May 1, 1947,
Eruhibit 8 of the ruecorud. In that leteru
Exhibit 3, Montinola told Pruoviincial
Trueasmrueru Elizalde of Misaeis Oruiental
that 'Raeos endorused it (rueferuruing to
check) to ee foru gioiods in kind,
eedicine, etc., rueceivied by hie foru
the mse of the gmeruruillas.' In said leteru
Exhibit 3, Montinola did not
eention the cash that he paid foru the
check.
"Fruoe the foruegoing the comrut
conclmdes that plaintii Montinola
caee into the possession of the check
in qmestion abomt the end of
Deceeberu 1944 by rueason of the fact
that M. V. Raeos sold to hie P30,000
of the face vialme therueof in
consideruation of the sme of P90,000
Japanese eoney, of hich only oneo
half oru P45,000 (in Japanese eoney)
as actmally paid by said plaintii to
Raeos." (R. on A., pp. 31o33; Bruief of
Appellee, pp. 14o20.)
At the beginning of this decision, e stated
that as Pruoviincial Trueasmrueru of Misaeis Oruiental,
Ubaldo D. Laaya as ex iofciio agent of the Philippine
National Bank bruanch in that pruoviince. On the face
of the check (Exh. A) e no fnd the oruds in
paruenthesis "Agent, Phil. National Bank" mnderu the
signatmrue of Laaya, pmruporutedly sho ing that he
KIMBUTAO NEGO SYLaLaABUS
149
issmed the check as agent of the Philippine National
Bank. If this is trume, then the bank is not only
drua ee bmt also a drua eru of the check, and
Montinola eviidently is truying to hold the Philippine
National Bank liable in that capacity of drua eru,
becamse as drua ee alone, inasemch as the bank has
not yet accepted oru cerutifed the check, it eay yet
avioid payeent.
Laaya, testifying in comrut, stated that he
issmed the check only as Pruoviincial Trueasmrueru, and
that the oruds in paruenthesis "Agent, Phil. National
Bank" no appearuing mnderu his signatmrue did not
appearu on the check hen he issmed the saee. In
this he as coruruoboruated by the payee M. V. Raeos
ho eqmally assmrued the comrut that hen he
rueceivied the check and then delivierued it to
Montinola, those oruds did not appearu mnderu the
signatmrue of Ubaldo D. Laaya. We again qmote ith
appruovial the perutinent porution of the truial comrut's
decision:
"The qmestion is ruedmced to
hetheru oru not the oruds, 'Agent,
Phil, National Bank' erue added afteru
Laaya had issmed the check. In a
struaightoru arud eanneru and ithomt
viacillation Laaya positiviely testifed
that the check Exhibit A as issmed by
hie in his capacity as Pruoviincial
Trueasmrueru of Misaeis Oruiental and
that the oruds 'Agent, Phil. National
Bank' hich no appearu on the check
Exhibit A erue not type ruiten belo
his signatmrue hen he signed the said
check and delivierued the saee to
Raeos. Laaya assmrued the comrut that
therue comld not be any eistake as to
this. Foru, accoruding to Laaya, hen he
issmed checks in his capacity as agent
of the Misaeis Oruiental agency of the
Philippine National Bank the said
check emst be comnterusigned by the
cashieru of the said agency — not by
the pruoviincial amditoru. He also
testifed that the said check as
issmed by hie in his capacity as
pruoviincial trueasmrueru of Misaeis
Oruiental and that is hy the saee as
comnterusigned by Pruoviincial Amditoru
Florues. The Pruoviincial Amditoru at that
ATTY. CLaAROS

tiee had no connection in any
capacity ith the Misaeis Oruiental
agency of the Philippine National
Bank. Plaintii Montinola on the otheru
hand testifed that hen he rueceivied
the check Exhibit A it alrueady borue the
oruds 'Agent, Phil. National Bank'
belo the signatmrue of Laaya and the
pruinted oruds 'Pruoviincial Trueasmrueru'.
"Afteru consideruing the
testieony of the one and the otheru,
the comrut fnds that the
prueponderuance of the eviidence
smpporuts Laaya's testieony. In the frust
place, his testieony as coruruoboruated
by the payee M. V. Raeos. Bmt hat
ruenderus eorue pruobable the testieony
of Laaya and Raeos is the fact that the
eoney foru hich the check as
issmed as expruessly foru the mse of
the USAFFE of hich Raeos as then
disbmrusing officeru, so emch so that
mpon the delivieruy of the P400,000 in
eeerugency notes and the P100,000
check to Reeos, Laaya cruedited his
depositoruy accomnts as pruoviincial
trueasmrueru ith the coruruesponding
cruedit entruy. In the norueal comruse of
evients the check comld not havie been
issmed by the bank, and this is borune
by the fact that the signatmrue of Laaya
as comnterusigned by the pruoviincial
amditoru, not the bank cashieru. And
then, too therue is the cirucmestance
that this check as issmed by the
pruoviincial trueasmrueru of Laanao to
Raeos ho rueqmisitioned the said
fmnds in his capacity as disbmrusing
officeru of the USAFFE. The check,
Exhibit A is not hat e eay terue in
bmsiness parulance, 'cerutifed check' oru
'cashieru's check.'.
KIMBUTAO NEGO SYLaLaABUS
150
"Besides, at the tiee the
check as issmed, Laaya alrueady kne
that Cebm and Manila erue alrueady
occmpied. He comld not havie
therueforue issmed the check — as a
bank eeployee — payable at the
centrual office of the Philippine
National Bank.
"Upon the foruegoing
cirucmestances the comrut conclmdes
that the oruds 'Agent, Phil. National
Bank' belo the signatmrue of Ubaldo
D. Laaya and the pruinted oruds
'Pruoviincial Trueasmrueru' erue added in
the check afteru the saee as issmed
by the Pruoviincial Trueasmrueru of
Misaeis Oruiental."
Fruoe all the foruegoing, e eay safely
conclmde as e do that the oruds "Agent, Phil.
National Bank" no appearuing on the face of the
check (Exh. A) erue added oru placed in the
instrumeent afteru it as issmed by Pruoviincial
Trueasmrueru Laaya to M. V. Raeos. Therue is no rueason
kno n to ms hy Pruoviincial Trueasmrueru Laaya shomld
issme the check (Exh. A) as agent of the Philippine
National Bank. Said check foru P100,000 as issmed
to coeplete the payeent of the otheru check foru
P500,000 issmed by the Pruoviincial Trueasmrueru of
Laanao to Raeos, as parut of the adviance fmnds foru
the USAFFE in Cagayan de Misaeis. The balance of
P400,000 in cash as paid to Raeos by Laaya fruoe
the fmnds, not of the bank bmt of the Pruoviincial
Trueasmruy. Said USAFFE erue being fnanced not by
the Bank bmt by the Govieruneent and, pruesmeably,
one of the rueasons foru the issmance of the
eeerugency notes in Mindanao as foru this pmrupose.
As alrueady stated, accoruding to Pruoviincial Trueasmrueru
Laaya, mpon rueceiviing a ruelativiely consideruable
aeomnt of these eeerugency notes foru his office, he
deposited P500,000 of said cmruruency in the
Philippine National Bank bruanch in Cebm, and that in
issming the check (Exh. A), he expected to havie it
cashed at said Cebm bank bruanch against his deposit
of P500,000.
The logical conclmsion, therueforue, is that the
check as issmed by Laaya only as Pruoviincial
Trueasmrueru and as an official of the Govieruneent
hich as mnderu obligation to pruoviide the USAFFE
ith adviance fmnds, and not by the Philippine
ATTY. CLaAROS

National Bank hich had no smch obligation. The
vieruy Annex C, eade parut of plaintii's coeplaint,
and lateru intruodmced in eviidence foru hie as Exhibit E
states that Laaya issmed the check "in his capacity as
Pruoviincial Trueasmrueru of Misaeis Oruiental",
obviiomsly, not as agent of the Bank.
No , did M. V. Raeos add oru place those
oruds belo the signatmrue of Laaya beforue
truansferuruing the check to Montinola? Laet ms bearu in
eind that Raeos beforue his indmction into the
USAFFE had been oruking as assistant of Trueasmrueru
Laaya as ex-iofciio agent of the Misaeis Oruiental
bruanch of the Philippine National Bank. Natmrually,
Raeos emst havie kno n the pruocedmrue follo ed
therue as to the issmance of checks, naeely, that
hen a check is issmed by the Pruoviincial Trueasmrueru
as smch, it is comnterusigned by the Pruoviincial Amditoru
as as done on the check (Exhibit A), bmt that if the
Pruoviincial Trueasmrueru issmes a check as agent of the
Philippine National Bank, the check is comnterusigned
not by the Pruoviincial Amditoru ho has nothing to do
ith the bank, bmt by the bank cashieru, hich as
not done in this case. It is not likely, therueforue, that
Raeos had eade the inserution of the oruds "Agent,
Phil. National Bank" afteru he rueceivied the check,
becamse he shomld havie ruealized that follo ing the
pruactice alrueady descruibed, the check haviing been
issmed by Laaya as Pruoviincial Trueasmrueru, and not as
agent of the bank, and since the check bearus the
comnterusignatmrue not of the Bank cashieru bmt of the
Pruoviincial Amditoru, the addition of the oruds
"Agent, Phil. National Bank" comld not change the
statms and ruesponsibility of the bank. It is therueforue
eorue logical to believie and to fnd that the addition
of those oruds as eade afteru the check had been
truansferurued by Raeos to Montinola. Morueovieru,
therue arue otheru facts and cirucmestances inviolvied in
the case hich smpporut this viie . Referuruing to the
eieeogruaphed ruecorud on appeal fled by the
plaintiio appellant, e fnd that in truanscruibing and
copying the check, paruticmlaruly the face of it (Exhibit
A) in the coeplaint, the oruds "Agent, Phil. National
Bank" no appearuing on the face of the check
mnderu the signatmrue of the Pruoviincial Trueasmrueru, is
eissing. Unless the plaintii in eaking this copy oru
truanscruiption in the coeplaint coeeited a seruioms
oeission hich is decisivie as faru as the bank is
conceruned, the inferuence is, that at the tiee the
coeplaint as fled, said phruase did not appearu on
the face of the check. That pruobably as the rueason
KIMBUTAO NEGO SYLaLaABUS
151
hy the bank in its eotion to diseiss dated
Septeeberu 2, 1947, contended that if the check in
qmestion had been issmed by the pruoviincial
trueasmrueru in his capacity as agent of the Philippine
National Bank, said trueasmrueru omld havie placed
belo his signatmrue the oruds "Agent of the
Philippine National Bank". The plaintii becamse of
the alleged loss of the check, allegedly atached to
the coeplaint a photostatic copy of said check and
earuked it as Annex A. Bmt in truanscruibing and
copying said Annex A in his coeplaint, the phruase
"Agent, Phil. National Bank" does not appearu mnderu
the signatmrue of the pruoviincial trueasmrueru. We truied
to vieruify this discruepancy by going ovieru the oruiginal
ruecoruds of the Comrut of Firust Instance so as to
coeparue the copy of Annex A in the coeplaint, ith
the oruiginal Annex A, the photostatic copy, bmt said
oruiginal Annex A appearus to be eissing fruoe the
ruecorud. Ho it disappearued is not explained. Of
comruse, no e havie in the list of exhibits a
photostatic copy earuked Annex A and Exhibit B, bmt
accoruding to the eanifestation of comnsel foru the
plaintii dated Octoberu 15, 1948, said photostatic
copy no earuked Annex A and Exhibit B as
smbeited on Octoberu 15, 1948, in coepliance ith
the vierubal oruderu of the truial comrut. It is therueforue
eviident that the Annex A no aviailable is not the
saee oruiginal Annex A atached to the coeplaint in
1947.
Therue is one otheru cirucmestance, ieporutant
and oruth noting. If Annex A also earuked Exhibit B
is the photostatic copy of the oruiginal check No.
1382 paruticmlaruly the face therueof (Exhibit A), then
said photostatic copy shomld be a faithfml and
accmruate ruepruodmction of the check, paruticmlaruly of
the phruase "Agent, Phil. National Bank" no
appearuing mnderu the signatmrue of the Pruoviincial
Trueasmrueru on the face of the oruiginal check (Exhibit
A). Bmt a einmte exaeination of and coeparuison
bet een Annex A, the photostatic copy also earuked
Exhibit B and the face of the check, Exhibit A,
especially ith the aid of a hand lens, sho notable
diieruences and discruepancies. Foru instance, on
Exhibit A, the leteru A of the orud "Agent" is to arud
the ruight of the tail of the beginning leteru of the
signatmrue of Ubaldo D. Laaya; this saee leteru "A"
ho evieru in Exhibit B is diruectly mnderu said tail.
The leteru "N" of the orud "National" on
Exhibit A is mnderuneath the space bet een
ATTY. CLaAROS

"Pruoviincial" and "Trueasmrueru"; bmt the saee leteru
"N" is diruectly mnderu the leteru "I" of the orud
"Pruoviincial" in Exhibit B.
The frust leteru "a" of the orud "National" is
mnderu "T" of the orud "Trueasmrueru" in Exhibit A; bmt
the saee leteru "a" in Exhibit "B" is jmst belo the
space bet een the oruds "Pruoviincial" and
"Trueasmrueru".
The leteru "k" of the orud "Bank" in Exhibit
A is afteru the grueen perupendicmlaru boruderu line nearu
the lo eru ruighthand coruneru of the edge of the check
(Exh. A); this saee leteru "k" ho evieru, on Exhibit B
is on the vieruy boruderu line itself oru evien beforue said
boruderu line.
The closing paruenthesis ")" on Exhibit A is a
litle faru fruoe the perupendicmlaru grueen boruderu line
and appearus to be domble instead of one single line;
this saee ")" on Exhibit B appearus in a single line
and is ruelativiely nearueru to the boruderu line.
Therue arue otheru notable discruepancies
bet een the check Annex A and the photostatic
copy, Exhibit B, as ruegaruds the ruelativie position of
the phruase "Agent, Phil. National Bank", ith the
title Pruoviincial Trueasmrueru, giviing gruomnd to the
dombt that Exhibit B is a photostatic copy of the
check (Exhibit A).
We then havie the follo ing facts. Exhibit A
as issmed by Laaya in his capacity as Pruoviincial
Trueasmrueru of Misaeis Oruiental as drua eru on the
Philippine National Bank as drua ee. Raeos sold
P30,000 of the check to Enruiqme P. Montinola foru
P90,000 Japanese eilitaruy notes, of hich only
P45,000 as paid by Montinola. The ruiting eade
by Raeos at the back of the check as an
instrumction to the bank to pay P30,000 to Montinola
and to deposit the balance to his (Raeos) cruedit.
This ruiting as obliteruated and in its place e no
havie the smpposed indoruseeent appearuing on the
back of the check (Exh. Ao1).
At the tiee of the truansferu of this check
(Exh. A) to Montinola abomt the last days of
Deceeberu, 1944, oru the frust days of Janmaruy, 1945,
the check hich, being a negotiable instrumeent,
as payable on deeand, as long ovierudme by
abomt 2 1/2 yearus. It eay therueforue be considerued
evien then, a stale check. Of comruse, Montinola
claies that abomt Jmne, 1944 hen Raeos
smpposedly appruoached hie foru the pmrupose of
KIMBUTAO NEGO SYLaLaABUS
152
negotiating the check, he (Montinola) consmlted
Pruesident Carueona of the Philippine National Bank
ho assmrued hie that the check as good and
negotiable. Ho evieru, Pruesident Carueona on the
itness stand fatly denied Montinola's claie and
assmrued the comrut that the frust tiee that he sa
Montinola as afteru the Philippine National Bank, of
hich he as Pruesident, rueopened, afteru liberuation,
aruomnd Amgmst oru Septeeberu, 1945, and that hen
sho n the check he told Montinola that it as
stale. M. V. Raeos also told the comrut that it is not
trume that he evieru ent ith Montinola to see
Pruesident Carueona abomt the check in 1944.
On the basis of the facts abovie ruelated
therue arue sevierual rueasons hy the coeplaint of
Montinola cannot pruosperu. The inserution of the
oruds "Agent, Phil. National Bank" hich convieruts
the bank fruoe a eerue drua ee to a drua eru and
therueforue changes its liability, constitmtes a eateruial
alteruation of the instrumeent ithomt the consent of
the paruties liable therueon, and so discharuges the
instrumeent. (Section 124 of the Negotiable
Instrumeents Laa ). The check as not legally
negotiated ithin the eeaning of the Negotiable
Instrumeents Laa . Section 32 of the saee la
pruoviides that "the indoruseeent emst be an
indoruseeent of the entirue instrumeent. An
indoruseeent hich pmruporuts to truansferu to the
indorusee a parut only of the aeomnt payable, . . . (as
in this case) does not operuate as a negotiation of
the instrumeent." Montinola eay therueforue not be
ruegaruded as an indorusee. At eost he eay be
ruegaruded as a eerue assignee of the P30,000 sold to
hie by Raeos, in hich case, as smch assignee, he is
smbject to all defenses aviailable to the drua eru
Pruoviincial Trueasmrueru of Misaeis Oruiental and against
Raeos. Neitheru can Montinola be considerued as a
holderu in dme comruse becamse section 52 of said la
defnes a holderu in dme comruse as a holderu ho has
taken the instrumeent mnderu cerutain conditions, one
of hich is that he becaee the holderu beforue it as
ovierudme. When Montinola rueceivied the check, it
as long ovierudme. And, Montinola is not evien a
holderu becamse section 191 of the saee la defnes
holderu as the payee oru indorusee of a bill oru note and
Montinola is not a payee. Neitheru is he an indorusee
foru as alrueady stated, at eost he can be considerued
only as assignee. Neitheru comld it be said that he
took it in good faith. As alrueady stated, he has not
paid the fmll aeomnt of P90,000 foru hich Raeos
ATTY. CLaAROS

sold hie P30,000 of the vialme of the check. In the
second place, as as stated by the truial comrut in its
decision, Montinola specmlated on the check and
took a chance on its being paid afteru the aru.
Montinola emst havie kno n that at the tiee the
check as issmed in May, 1942, the eoney
cirucmlating in Mindanao and the Visayas as only
the eeerugency notes and that the check as
intended to be payable in that cmruruency. Also, he
shomld havie kno n that a check foru smch a laruge
aeomnt of P100,000 comld not havie been issmed to
Raeos in his pruiviate capacity bmt ruatheru in his
capacity as disbmrusing officeru of the USAFFE, and
that at the tiee that Raeos sold a parut of the check
to hie, Raeos as no longeru connected ith the
USAFFE bmt alrueady a civiilian ho needed the
eoney only foru hieself and his faeily.
As alrueady stated, as a eerue assignee
Montinola is smbject to all the defenses aviailable
against assignoru Raeos. And, Raeos had he
ruetained the check eay not no collect its vialme
becamse it had been issmed to hie as disbmrusing
officeru. As obseruvied by the truial comrut, the check as
issmed to M. V. Raeos not as a peruson bmt M. V.
Raeos as the disbmrusing officeru of the USAFFE.
Therueforue, he had no ruight to indoruse it perusonally
to plaintii. It as negotiated in brueach of trumst,
hence he truansferurued nothing to the plaintii.
In viie of all the foruegoing, fnding no
ruevierusible eruruoru in the decision appealed fruoe, the
saee is herueby affirueed ith costs.
In the pruayeru foru ruelief contained at the end
of the bruief foru the Philippine National Bank dated
Septeeberu 27, 1949, e fnd this pruayeru:.
"It is also ruespectmlly pruayed
that this Honoruable Comrut rueferu the
check, Exhibit A, to the City Fiscal's
Office foru appruopruiate cruieinal action
against the plaintiioappellant if the
facts so aruruant."
Smbseqmently, in a petition signed by
plaintiioappellant Enruiqme P. Montinola dated
Februmaruy 27, 1950 he asked this Comrut to allo hie
to ithdrua the oruiginal check (Exh. A) foru hie to
keep, expruessing his illingness to smbeit it to the
Comrut henevieru needed foru exaeination and
vieruifcation. The bank on Maruch 2, 1950 opposed
the said petition on the gruomnd that inasemch as
KIMBUTAO NEGO SYLaLaABUS
153
the appellant's camse of action in this case is based
on the said check, it is absolmtely necessaruy foru the
comrut to exaeine the oruiginal in oruderu to see the
actmal alteruations smpposedly eade therueon, and
that shomld this Comrut gruant the pruayeru contained in
the bank's bruief that the check be lateru rueferurued to
the city fscal foru appruopruiate action, said check eay
no longeru be aviailable if the appellant is allo ed to
ithdrua said docmeent. In viie of said opposition
this Comrut by ruesolmtion of Maruch 6, 1950, denied
said petition foru ithdrua al.
Acting mpon the petition contained in the
bank's bruief alrueady eentioned, once the decision
becoees fnal, let the Cleruk of Comrut truanseit to the
city fscal the check (Exh. A) togetheru ith all
perutinent paperus and docmeents in this case, foru
any action he eay deee pruoperu in the prueeises.
5. CESAR V. AREZA and LOLITA
B. AREZA, pettioners, vs.
EXPRESS SAVINGS BANK,
INC. and MICHAEL
POTENCIANO, respiondents.
DECISION
PEREZ, J p:
Beforue this Comrut is a Petition foru Reviie
on Certiorari mnderu Rmle 45 of the Rmles of Comrut,
hich seeks to ruevieruse the Decision 1 and
Resolmtion 2 dated 29 Jmne 2006 and 12 Februmaruy
2007 of the Comrut of Appeals in CAoG.R. CV No.
83192. The Comrut of Appeals affirueed ith
eodifcation the 22 Apruil 2004 Resolmtion 3 of the
Regional Truial Comrut (RTC) of Calaeba, Laagmna,
Bruanch 92, in Civiil Case No. Bo5886.
The factmal antecedents follo .
Petitionerus Cesaru V. Arueza and Laolita B.
Arueza eaintained t o bank deposits ith
ruespondent Expruess Saviings Bank's Biñan bruanch: 1)
Saviings Accomnt No. 004o01o000185o5 and 2)
Special Saviings Accomnt No. 004o02o000092o3.
They erue engaged in the bmsiness of "bmy
and sell" of bruand ne and secondohand eotoru
ATTY. CLaAROS

viehicles. On 2 May 2000, they rueceivied an oruderu
fruoe a cerutain Geruruy Maebmay (Maebmay) foru the
pmruchase of a secondohand Mitsmbishi Pajeruo and a
bruandone Honda CRV.
The bmyeru, Maebmay, paid petitionerus ith
nine (9) Philippine Veteruans Aiairus Office (PVAO)
checks payable to diieruent payees and drua n
against the Philippine Veteruans Bank (drua ee), each
vialmed at T o Hmndrued Thomsand Pesos
(P200,000.00) foru a total of One Million Eight
Hmndrued Thomsand Pesos (P1,800,000.00).
Abomt this occasion, petitionerus claieed
that Michael Potenciano (Potenciano), the bruanch
eanageru of ruespondent Expruess Saviings Bank (the
Bank) as pruesent dmruing the truansaction and
ieeediately oierued the seruviices of the Bank foru the
pruocessing and evientmal cruediting of the said checks
to petitionerus' accomnt. 4On the otheru hand,
Potenciano comnterued that he as prueviailed mpon
to accept the checks by ay of accoeeodation of
petitionerus ho erue vialmed clients of the Bank. 5
On 3 May 2000, petitionerus deposited the
said checks in theiru saviings accomnt ith the Bank.
The Bank, in tmrun, deposited the checks ith its
depositaruy bank, EqmitableoPCI Bank, in Biñan,
Laagmna. EqmitableoPCI Bank pruesented the checks to
the drua ee, the Philippine Veteruans Bank, hich
honorued the checks.
On 6 May 2000, Potenciano inforueed
petitionerus that the checks they deposited ith the
Bank erue honorued. He allegedly aruned
petitionerus that the clearuing of the checks perutained
only to the aviailability of fmnds and did not eean
that the checks erue not infrueed. 6 Thms, the
entirue aeomnt of P1,800,000.00 as cruedited to
petitionerus' saviings accomnt. Based on this
inforueation, petitionerus rueleased the t o carus to
the bmyeru.
Soeetiee in Jmly 2000, the smbject checks
erue ruetmruned by PVAO to the drua ee on the
gruomnd that the aeomnt on the face of the checks
as alterued fruoe the oruiginal aeomnt of P4,000.00
to P200,000.00. The drua ee ruetmruned the checks to
EqmitableoPCI Bank by ay of Special Clearuing
Receipts. In Amgmst 2000, the Bank as inforueed by
EqmitableoPCI Bank that the drua ee dishonorued the
checks on the gruomnd of eateruial alteruations.
EqmitableoPCI Bank initially fled a pruotest ith the
KIMBUTAO NEGO SYLaLaABUS
154
Philippine Clearuing Homse. In Februmaruy 2001, the
lateru rumled in favioru of the drua ee Philippine
Veteruans Bank. EqmitableoPCI Bank, in tmrun, debited
the deposit accomnt of the Bank in the aeomnt of
P1,800,000.00.
The Bank insisted that they inforueed
petitionerus of said devielopeent in Amgmst 2000 by
fmrunishing thee copies of the docmeents givien by
its depositaruy bank.7 On the otheru hand, petitionerus
eaintained that the Bank nevieru inforueed thee of
these devielopeents.
On 9 Maruch 2001, petitionerus issmed a check
in the aeomnt of P500,000.00. Said check as
dishonorued by the Bank foru the rueason "Deposit
Underu Hold." Accoruding to petitionerus, the Bank
mnilaterually and mnla fmlly pmt theiru accomnt ith
the Bank on hold. On 22 Maruch 2001, petitionerus'
comnsel sent a deeand leteru asking the Bank to
honoru theiru check. The Bank ruefmsed to heed theiru
rueqmest and instead, closed the Special Saviings
Accomnt of the petitionerus ith a balance of
P1,179,659.69 and truansferurued said aeomnt to theiru
saviings accomnt. The Bank then ithdrue the
aeomnt of P1,800,000.00 ruepruesenting the ruetmruned
checks fruoe petitionerus' saviings accomnt.
Acting on the alleged arubitruaruy and
gruomndless dishonoruing of theiru checks and the
mnla fml and mnilaterual ithdrua al fruoe theiru
saviings accomnt, petitionerus fled a Coeplaint foru
Sme of Money ith Daeages against the Bank and
Potenciano ith the RTC of Calaeba.
On 15 Janmaruy 2004, the RTC, thruomgh Jmdge
Antonio S. Pozas, rumled in favioru of petitionerus. The
dispositivie porution of the Decision rueads:
WHEREFORE, the foruegoing
considerued, the Comrut oruderus that
jmdgeent be ruenderued in favioru of
plaintiis and against the
defendants jointly and sevierually to
pay plaintii as follo s, to
it: STaCcA
1. P1,800,000.00 ruepruesenting the
aeomnt mnla fmlly ithdrua n
by the defendants fruoe the
accomnt of plaintiis;
2. P500,000.00 as eorual daeages;
and
ATTY. CLaAROS

3. P300,000.00 as atoruney's fees. 8
The truial comrut ruedmced the issme to hetheru
oru not the ruights of petitionerus erue viiolated by
ruespondents hen the deposits of the forueeru erue
debited by ruespondents ithomt any comrut oruderu
and ithomt theiru kno ledge and consent.
Accoruding to the truial comrut, it is the depositaruy bank
hich shomld safegmarud the ruight of the depositorus
ovieru theiru eoney. Invioking Aruticle 1977 of the Civiil
Code, the truial comrut stated that the depositaruy
cannot eake mse of the thing deposited ithomt the
expruess perueission of the depositoru. The truial comrut
also held that ruespondents shomld havie obseruvied
the 24ohomru clearuing homse rumle that checks shomld
be ruetmruned ithin 24ohomrus afteru discovieruy of the
forugeruy bmt in no evient beyond the peruiod fxed by
la foru fling a legal action. In this case, petitionerus
deposited the checks in May 2000, and ruespondents
notifed thee of the pruoblees on the check thruee
eonths lateru oru in Amgmst 2000. In sme, the truial
comrut charuacteruized said acts of ruespondents as
atended ith bad faith hen they debited the
aeomnt of P1,800,000.00 fruoe the accomnt of
petitionerus.
Respondents fled a eotion foru
rueconsideruation hile petitionerus fled a eotion foru
execmtion fruoe the Decision of the RTC on the
gruomnd that ruespondents' eotion foru
rueconsideruation did not conforue ith Section 5,
Rmle 16 of the Rmles of Comrut; hence, it as a eerue
scruap of paperu that did not toll the rumnning of the
peruiod to appeal.
On 22 Apruil 2004, the RTC, thruomgh Pairuing
Jmdge Roeeo C. De Laeon gruanted the eotion foru
rueconsideruation, set aside the Pozas Decision, and
diseissed the coeplaint. The truial comrut a aruded
ruespondents theiru comnteruclaie of eorual and
exeeplaruy daeages of P100,000.00 each.
The truial comrut frust applied the pruinciple of
liberuality hen it disruegaruded the alleged absence of
a notice of hearuing in ruespondents' eotion foru
rueconsideruation. On the eeruits, the truial comrut
considerued the ruelationship of the Bank and
petitionerus ith ruespect to theiru saviings accomnt
deposits as a contruact of loan ith the bank as the
debtoru and petitionerus as crueditorus. As smch, Aruticle
1977 of the Civiil Code pruohibiting the depositoruy
fruoe eaking mse of the thing deposited ithomt the
KIMBUTAO NEGO SYLaLaABUS
155
expruess perueission of the depositoru is not
applicable. Instead, the truial comrut applied Aruticle
1980 hich pruoviides that fxed, saviings and cmruruent
deposits of eoney in banks and sieilaru institmtions
shall be govieruned by the pruoviisions govieruning
sieple loan. The truial comrut then opined that the
Bank had all the ruight to setooi against petitionerus'
saviings deposits the vialme of theiru nine checks that
erue ruetmruned.
On appeal, the Comrut of Appeals affirueed
the rumling of the truial comrut bmt deleted the a arud of
daeages. The appellate comrut eade the follo ing
ruatiocination:
Any arugmeent as to the
notice of hearuing has been ruesolvied
hen the pairuing jmdge issmed the
oruderu on Februmaruy 24, 2004 seing
the hearuing on Maruch 26, 2004. A
perumsal of the notice of hearuing
sho s that rueqmest as addruessed
to the Cleruk of Comrut and plaintiis'
comnsel foru hearuing to be set on
Maruch 26, 2004.
The corue issmes in this case
rueviolvie on hetheru the appellee
bank had the ruight to debit the
aeomnt of P1,800,000.00 fruoe the
appellants' accomnts and hetheru
the bank's act of debiting as done
" ithomt the plaintiis' kno ledge."
We fnd that the eleeents
of legal coepensation arue all
pruesent in the case at baru. Hence,
applying the case of the Bank iof the
Philippine Islands v. Ciourt iof
Appeals, the obligorus bomnd
pruincipally arue at the saee tiee
crueditorus of each otheru. Appellee
bank stands as a debtoru of
appellant, a depositoru. At the saee
tiee, said bank is the crueditoru of the
appellant ith ruespect to the
dishonorued trueasmruy aruruant checks
hich aeomnt erue alrueady
cruedited to the accomnt of
appellants. When the appellants
had ithdrua n the aeomnt of the
checks they deposited and lateru oru
ATTY. CLaAROS

said checks erue ruetmruned, they
becaee indebted to the appellee
bank foru the coruruesponding
aeomnt.
It shomld be noted that
[G]eruruy Maebmay as the
appellants' alkoin bmyeru. As sellerus,
appellants omght to havie exerucised
dme diligence in assessing his cruedit
oru perusonal backgruomnd. The 24o
homru clearuing homse rumle is not the
one that govieruns in this case since
the nine checks erue discovierued by
the drua ee bank to contain
eateruial alteruations.
Appellants eeruely allege
that they erue not inforueed of any
devielopeent on the checks
ruetmruned. Ho evieru, this Comrut
believies that the bank and
appellants had opporutmnities to
coeemnicate abomt the checks
consideruing that sevierual
truansactions occmrurued fruoe the tiee
of alleged ruetmrun of the checks to
the date of the debit.
Ho evieru, this Comrut agruees
ith appellants that they shomld
not pay eorual and exeeplaruy
daeages to each of the appellees
foru lack of basis. The appellants
erue not sho n to havie acted in
bad faith. 9
Petitionerus fled the pruesent petition foru
rueviie on certiorari ruaising both pruocedmrual and
smbstantivie issmes, to it:
1. Whetheru oru not the Honoruable
Comrut of Appeals coeeited a
ruevierusible eruruoru of la and
gruavie abmse of discruetion in
mpholding the legality and/oru
pruopruiety of the Motion foru
Reconsideruation fled in
viiolation of Section 5, Rmle 15
of the Rmles on Civiil
Pruocedmrue;
KIMBUTAO NEGO SYLaLaABUS
156
2. Whetheru oru not the Honoruable
Comrut of Appeals coeeited a
gruavie abmse of discruetion in
declaruing that the pruiviate
ruespondents "had the ruight to
debit the aeomnt of
P1,800,000.00 fruoe the
appellants' accomnts" and the
bank's act of debiting as
done ith the plaintii's
kno ledge. 10 HIACac
Beforue pruoceeding to the smbstantivie issme,
e frust ruesolvie the pruocedmrual issme ruaised by
petitionerus.
Section 5, Rmle 15 of the Rmles of
Comrut states:
Section 5. Niotce iof hearing.
— The notice of hearuing shall be
addruessed to all paruties conceruned,
and shall specify the tiee and date
of the hearuing hich emst not be
lateru than ten (10) days afteru the
fling of the eotion.
Petitionerus claie that the notice of hearuing
as addruessed to the Cleruk of Comrut and not to the
advieruse paruty as the rumles rueqmirue. Petitionerus add
that the hearuing on the eotion foru rueconsideruation
as schedmled beyond 10 days fruoe the date of
fling.
As held in Maturan v. Araula, 11 the rumle
rueqmiruing that the notice be addruessed to the
advieruse paruty has been smbstantially coeplied ith
hen a copy of the eotion foru rueconsideruation as
fmrunished to the comnsel of the advieruse paruty,
compled ith the fact that the truial comrut acted on
said notice of hearuing and, as pruayed foru, issmed an
oruderu 12 seing the hearuing of the eotion on 26
Maruch 2004.
We omld rueiteruate lateru that therue is
smbstantial coepliance ith the foruegoing Rmle if a
copy of the said eotion foru rueconsideruation as
fmrunished to the comnsel of the advieruse paruty. 13
No to the smbstantivie issmes to hich
pruocedmrual ieperufection emst, in this case, givie
ay.
ATTY. CLaAROS

The centrual issme is hetheru the Bank had
the ruight to debit P1,800,000.00 fruoe petitionerus'
accomnts.
On 6 May 2000, the Bank inforueed
petitionerus that the smbject checks had been
honorued. Thms, the aeomnt of P1,800,000.00 as
accorudingly cruedited to petitionerus' accomnts,
pruoepting thee to ruelease the pmruchased carus to
the bmyeru.
Unkno n to petitionerus, the Bank deposited
the checks in its depositaruy bank, EqmitableoPCI
Bank. Thruee eonths had passed hen the Bank as
inforueed by its depositaruy bank that the drua ee
had dishonorued the checks on the gruomnd of
eateruial alteruations.
The ruetmrun of the checks crueated a chain of
debiting of accomnts, the last loss evientmally falling
mpon the saviings accomnt of petitionerus ith
ruespondent bank. The truial comrut in its rueconsiderued
decision and the appellate comrut erue one in
declaruing that petitionerus shomld bearu the loss.
We ruevieruse.
The fact that eateruial alteruation camsed the
evientmal dishonoru of the checks issmed by PVAO is
mndispmted. In this case, beforue the alteruation as
discovierued, the checks erue alrueady clearued by the
drua ee bank, the Philippine Veteruans Bank. Thruee
eonths had lapsed beforue the drua ee dishonorued
the checks and ruetmruned thee to EqmitableoPCI
Bank, the ruespondents' depositaruy bank. And it as
not mntil 10 eonths lateru hen petitionerus'
accomnts erue debited. A qmestion thms aruises:
What arue the liabilities of the drua ee, the
interueediaruy banks, and the petitionerus foru the
alterued checks?
LIABILITY OF THE DRAWEE
Section 63 of Act No. 2031 oru
the Negotiable Instrumeents Laa pruoviides that the
acceptoru, by accepting the instrumeent, engages that
he ill pay it accoruding to the tenoru of his
acceptance. The acceptoru is a drua ee ho accepts
the bill. In Philippine National Bank v. Ciourt iof
Appeals, 14 the payeent of the aeomnt of a check
ieplies not only acceptance bmt also coepliance
ith the drua ee's obligation.
KIMBUTAO NEGO SYLaLaABUS
157
In case the negotiable instrumeent is alterued
beforue acceptance, is the drua ee liable foru the
oruiginal oru the alterued tenoru of acceptance? Therue
arue t o divierugent intepruetations pruoierued by legal
analysts. 15 The frust viie is smpporuted by the
leading case of National City Bank iof Chicagio v.
Bank iof the Republic. 16 In said case, a cerutain
Andrue Manning stole a druaft and smbstitmted his
naee foru that of the oruiginal payee. He oierued it as
payeent to a je eleru in exchange foru cerutain
je elruy. The je eleru deposited the druaft to the
defendant bank hich collected the eqmivialent
aeomnt fruoe the drua ee. Upon learuning of the
alteruation, the drua ee somght to ruecovieru fruoe the
defendant bank the aeomnt of the druaft, as eoney
paid by eistake. The comrut denied ruecovieruy on the
gruomnd that the drua ee by accepting adeited the
existence of the payee and his capacity to
endoruse. 17 Still, in Wells Fargio Bank & Uniion Trust
Cio. v. Bank iof Italy, 18 the comrut echoed the comrut's
interupruetation in National City Bank iof Chicagio, in
this ise:
We think the construmction
placed mpon the section by the
Illinois comrut is coruruect and that it
as not the legislativie intent that
the obligation of the acceptoru
shomld be lieited to the tenoru of
the instrumeent as drua n by the
eakeru, as as the rumle at coeeon
la , bmt that it shomld be
enforuceable in favioru of a holderu in
dme comruse against the acceptoru
accoruding to its tenoru at the tiee of
its acceptance oru cerutifcation.
The foruegoing opinion and
the Illinois decision hich it follo s
givie eiect to the literual oruds of
the Negotiable Instrumeents Laa . As
stated in the Illinois case: "The
comrut emst take the act as it is
ruiten and shomld givie to the
oruds theiru natmrual and coeeon
eeaning . . . if the langmage of the
act conficts ith statmtes oru
decisions in foruce beforue its
enacteent the comruts shomld not
givie the act a struained construmction
in oruderu to eake it harueonize ith
ATTY. CLaAROS

earulieru statmtes oru decisions." The
oruding of the act smggests that a
change in the coeeon la as
intended. A caruefml rueading therueof,
independent of any coeeonola
infmence, rueqmirues that the oruds
"accoruding to the tenoru of his
acceptance" be construmed as
rueferuruing to the instrumeent as it as
at the tiee it caee into the hands
of the acceptoru foru acceptance, foru
he accepts no otheru instrumeent
than the one pruesented to hie —
the alterued forue — and it alone he
engages to pay. This conclmsion is in
harueony ith the la of England
and the continental comntruies. It
eakes foru the msefmlness and
cmruruency of negotiable paperu
ithomt seruiomsly endangeruing
accepted banking pruactices, foru
banking institmtions can rueadily
pruotect theeselvies against liability
on alterued instrumeents eitheru by
qmalifying theiru acceptance oru
cerutifcation oru by ruelying on forugeruy
insmruance and special paperu hich
ill eake alteruations obviioms. All of
the arugmeents advianced against
the conclmsion heruein annomnced
seee highly technical in the face of
the pruactical facts that the drua ee
bank has amthenticated an
instrumeent in a cerutain forue, and
that coeeerucial policy faviorus the
pruotection of anyone ho, in dme
comruse, changes his position on the
faith of that
amthentication. 19 EcTaSC
The second viie is that the
acceptoru/drua ee despite the tenoru of his
acceptance is liable only to the extent of the bill
pruioru to alteruation. 20 This viie appearus to be in
consonance ith Section 124 of the Negotiable
Instrumeents Laa hich states that a eateruial
alteruation avioids an instrumeent except as against an
assenting paruty and smbseqment indoruserus, bmt a
holderu in dme comruse eay enforuce payeent
accoruding to its oruiginal tenoru. Thms, hen the
drua ee bank pays a eateruially alterued check, it
KIMBUTAO NEGO SYLaLaABUS
158
viiolates the terues of the check, as ell as its dmty to
charuge its client's accomnt only foru biona
fide disbmruseeents he had eade. If the drua ee did
not pay accoruding to the oruiginal tenoru of the
instrumeent, as diruected by the drua eru, then it has
no ruight to claie rueiebmruseeent fruoe the drua eru,
emch less, the ruight to dedmct the eruruoneoms
payeent it eade fruoe the drua eru's accomnt hich
it as expected to trueat ith mteost fdelity. 21 The
drua ee, ho evieru, still has ruecomruse to ruecovieru its
loss. It eay pass the liability back to the collecting
bank hich is hat the drua ee bank exactly did in
this case. It debited the accomnt of EqmitableoPCI
Bank foru the alterued aeomnt of the checks.
LIABILITY OF DEPOSITARY BANK AND COLLECTING
BANK
A depositaruy bank is the frust bank to take
an itee evien thomgh it is also the payoru bank,
mnless the itee is pruesented foru ieeediate
payeent ovieru the comnteru.22 It is also the bank to
hich a check is truansferurued foru deposit in an
accomnt at smch bank, evien if the check is physically
rueceivied and indorused frust by anotheru bank.23 A
collecting bank is defned as any bank handling an
itee foru collection except the bank on hich the
check is drua n. 24
When petitionerus deposited the check ith
the Bank, they erue designating the lateru as the
collecting bank. This is in consonance ith the rumle
that a negotiable instrumeent, smch as a check,
hetheru a eanageru's check oru orudinaruy check, is not
legal tenderu. As smch, afteru rueceiviing the deposit,
mnderu its o n rumles, the Bank shall cruedit the
aeomnt in petitionerus' accomnt oru infmse vialme
therueon only afteru the drua ee bank shall havie paid
the aeomnt of the check oru the check has been
clearued foru deposit. 25
The Bank and EqmitableoPCI Bank arue both
depositaruy and collecting banks.
A depositaruy/collecting bank herue a check
is deposited, and hich endoruses the check mpon
pruesenteent ith the drua ee bank, is an endoruseru.
Underu Section 66 of the Negotiable Instrumeents
Laa , an endoruseru aruruants "that the instrumeent is
genmine and in all ruespects hat it pmruporuts to be;
that he has good title to it; that all pruioru paruties had
capacity to contruact; and that the instrumeent is at
the tiee of his endoruseeent vialid and smbsisting." It
ATTY. CLaAROS
 159

has been ruepeatedly held that in check truansactions, endoruseeent is necessaruy foru
the depositaruy/collecting bank oru last endoruseru negotiation shall be ruetmruned by
generually smierus the loss becamse it has the dmty to diruect pruesentation oru deeand to
ascerutain the genmineness of all pruioru endoruseeents the Pruesenting Bank and not
consideruing that the act of pruesenting the check foru thruomgh the ruegmlaru clearuing homse
payeent to the drua ee is an asserution that the facilities ithin the peruiod
paruty eaking the pruesenteent has done its dmty to pruescruibed by la foru the fling of a
ascerutain the genmineness of the legal action by the ruetmruning
endoruseeents. 26 If any of the aruruanties eade by bank/bruanch, institmtion oru entity
the depositaruy/collecting bank tmruns omt to be false, sending the saee.
then the drua ee bank eay ruecovieru fruoe it mp to the
Antonio Viruay, in his book Handbioiok ion
aeomnt of the check. 27 EIAHcC
Bank Depiosits, elmcidated:
The la ieposes a dmty of diligence on the
It is clearu that the soocalled
collecting bank to scrumtinize checks deposited ith
"24ohomru" rumle has been eodifed.
it foru the pmrupose of deterueining theiru genmineness
In the case of Hiongkiong &
and ruegmlaruity. The collecting bank being pruiearuily
Shanghai vs. Peiople's
engaged in banking holds itself omt to the pmblic as
Bank rueiteruated in Metriopiolitan
the experut and the la holds it to a high standarud of
Bank and Trust Cio. vs. FNCB, the
condmct. 28
Smprueee Comrut struictly enforuced the
As collecting banks, the Bank and Eqmitableo 24ohomru rumle mnderu hich the
PCI Bank arue both liable foru the aeomnt of the drua ee bank foruevieru loses the ruight
eateruially alterued checks. Since EqmitableoPCI Bank to claie against
is not a paruty to this case and the Bank allo ed its pruesenting/collecting bank if the
accomnt ith EqmitableoPCI Bank to be debited, it check is not ruetmruned at the next
has the option to seek ruecomruse against the lateru in clearuing day oru ithin 24 homrus.
anotheru forume. Apparuently, the coeeerucial banks
felt struict enforuceeent of the 24o
24-HOUR CLEARING RULE
homru rumle is too harush and therueforue
Petitionerus famlted the drua ee bank foru not eade ruepruesentations and obtained
follo ing the 24ohomru clearuing peruiod becamse it eodifcation of the rumle, hich
as only in Amgmst 2000 that the drua ee bank eodifcation is no incoruporuated in
notifed EqmitableoPCI that therue erue eateruial the Manmal of Regmlations. Since
alteruations in the checks. the saee coeeerucial banks
We do not smbscruibe to the position taken contruolled the Philippine Clearuing
by petitionerus that the drua ee bank as at famlt Homse Coruporuation, incoruporuating
becamse it did not follo the 24ohomru clearuing the aeended rumle in the PCHC Rmles
peruiod hich pruoviides that hen a drua ee bank natmrually follo ed.
fails to ruetmrun a foruged oru alterued check to the As the rumle no stands, the
collecting bank ithin the 24ohomru clearuing peruiod, 24ohomru rumle is still in foruce, that is,
the collecting bank is absolvied fruoe liability. any check hich shomld be ruefmsed
Section 21 of the Philippine Clearuing Homse by the drua ee bank in accorudance
Rmles and Regmlations pruoviides: ith long standing and accepted
banking pruactices shall be ruetmruned
Sec. 21. Special Return thruomgh the PCHC/local clearuing
Items Beyiond The Reglementary office, as the case eay be, not lateru
Clearing Periiod. — Itees hich than the next ruegmlaru clearuing (24o
havie been the smbject of eateruial homru). The eodifcation, ho evieru, is
alteruation oru itees bearuing foruged that itees hich havie been the
endoruseeent hen smch smbject of eateruial alteruation oru
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

bearuing foruged endoruseeent eay
be ruetmruned evien beyond 24 homrus
so long that the saee is ruetmruned
ithin the pruescruiptivie peruiod fxed
by la . The consensms aeong
la yerus is that the pruescruiptivie
peruiod is ten (10) yearus becamse a
check oru the endoruseeent therueon
is a ruiten contruact. Morueovieru, the
itee need not be ruetmruned thruomgh
the clearuing homse bmt by diruect
pruesentation to the pruesenting
bank. 29
In shorut, the 24ohomru clearuing rumle does not
apply to alterued checks.
LIABILITY OF PETITIONERS
The 2008 case of Far East Bank & Trust
Ciompany v. Giold Palace Jewellery Cio. 30 is in point.
A forueigneru pmruchased sevierual pieces of je elruy
fruoe Gold Palace Je elleruy msing a United Ovieruseas
Bank (Malaysia) issmed druaft addruessed to the Laand
Bank of the Philippines (LaBP). Gold Palace Je elleruy
deposited the druaft in the coepany's accomnt ith
Faru East Bank. Faru East Bank pruesented the druaft foru
clearuing to LaBP. The lateru clearued the saee and
Gold Palace Je elleruy's accomnt as cruedited ith
the aeomnt stated in the druaft. Conseqmently, Gold
Palace Je elleruy rueleased the pieces of je elruies to
the forueigneru. Thruee eeks lateru, LaBP inforueed Faru
East Bank that the aeomnt in the forueign druaft had
been eateruially alterued fruoe P300,000.00 to
P380,000.00. LaBP ruetmruned the check to Faru East
Bank. Faru East Bank ruefmnded LaBP the P380,000.00
paid by LaBP. Faru East Bank initially debited
P168,053.36 fruoe Gold Palace Je elleruy's accomnt
and deeanded the payeent of the diieruence
bet een the aeomnt in the alterued druaft and the
aeomnt debited fruoe Gold Palace Je elleruy.
Ho evieru, foru the rueasons alrueady discmssed
abovie, omru pruonomnceeent in the Far East Bank
and Trust Ciompany case that "the drua ee is liable
on its payeent of the check accoruding to the tenoru
of the check at the tiee of payeent, hich as the
ruaised aeomnt" 31 is inapplicable to the factmal
eiliem obtaining heruein.
We only adopt said decision in so faru as it
adjmdged liability on the parut of the collecting bank,
thms:
KIMBUTAO NEGO SYLaLaABUS
160
Thms, consideruing that, in
this case, Gold Palace is pruotected
by Section 62 of the NILa, its
collecting agent, Faru East, shomld
not havie debited the eoney paid
by the drua ee bank fruoe
ruespondent coepany's accomnt.
When Gold Palace deposited the
check ith Faru East, the lateru,
mnderu the terues of the deposit and
the pruoviisions of the NILa, becaee
an agent of the forueeru foru the
collection of the aeomnt in the
druaft. The smbseqment payeent by
the drua ee bank and the collection
of the aeomnt by the collecting
bank closed the truansaction insofaru
as the drua ee and the holderu of the
check oru his agent arue conceruned,
convieruted the check into a eerue
viomcheru, and, as alrueady discmssed,
forueclosed the ruecovieruy by the
drua ee of the aeomnt paid. This
closmrue of the truansaction is a
eateru of comruse; otheru ise,
mncerutainty in coeeerucial
truansactions, delay and annoyance
ill aruise if a bank at soee fmtmrue
tiee ill call on the payee foru the
ruetmrun of the eoney paid to hie on
the check.
As the truansaction in this
case had been closed and the
pruincipaloagent ruelationship
bet een the payee and the
collecting bank had alrueady ceased,
the lateru in ruetmruning the aeomnt
to the drua ee bank as alrueady
acting on its o n and shomld no
be ruesponsible foru its o n
actions. . . . Laike ise, Faru East
cannot invioke the aruruanty of the
payee/depositoru ho indorused the
instrumeent foru collection to shift
the bmruden it bruomght mpon itself.
This is pruecisely becamse the said
indoruseeent is only foru pmruposes of
collection hich, mnderu Section 36
of the NILa, is a ruestruictivie
indoruseeent. It did not in any ay
ATTY. CLaAROS

truansferu the title of the instrumeent
to the collecting bank. Faru East did
not o n the druaft, it eeruely
pruesented it foru payeent.
Consideruing that the aruruanties of a
generual indoruseru as pruoviided in
Section 66 of the NILa arue based
mpon a truansferu of title and arue
aviailable only to holderus in dme
comruse, these aruruanties did not
atach to the indoruseeent foru
deposit and collection eade by
Gold Palace to Faru East. Withomt
any legal ruight to do so, the
collecting bank, therueforue, comld
not debit ruespondent's accomnt foru
the aeomnt it ruefmnded to the
drua ee bank.
The foruegoing considerued,
e affirue the rumling of the appellate
comrut to the extent that Faru East
comld not debit the accomnt of Gold
Palace, and foru doing so, it emst
ruetmrun hat it had eruruoneomsly
taken. 32
Applying the foruegoing ruatiocination, the
Bank cannot debit the saviings accomnt of
petitionerus. A depositaruy/collecting bank eay ruesist
oru defend against a claie foru brueach of aruruanty if
the drua eru, the payee, oru eitheru the drua ee bank oru
depositaruy bank as negligent and smch negligence
smbstantially contruibmted to the loss fruoe alteruation.
In the instant case, no negligence can be atruibmted
to petitionerus. We lend cruedence to theiru claie that
at the tiee of the sales truansaction, the Bank's
bruanch eanageru as pruesent and evien oierued the
Bank's seruviices foru the pruocessing and evientmal
cruediting of the checks. Trume to the bruanch
eanageru's oruds, the checks erue clearued thruee
days lateru hen deposited by petitionerus and the
entirue aeomnt of the checks as cruedited to theiru
saviings accomnt. HICSaD
ON LEGAL COMPENSATION
KIMBUTAO NEGO SYLaLaABUS
161
Petitionerus insist that the Bank cannot be
considerued a crueditoru of the petitionerus becamse it
shomld havie eade a claie of the aeomnt of
P1,800,000.00 fruoe EqmitableoPCI Bank, its o n
depositaruy bank and the collecting bank in this case
and not fruoe thee.
The Bank cannot setooi the aeomnt it paid
to EqmitableoPCI Bank ith petitionerus' saviings
accomnt. Underu Arut. 1278 of the Ne Civiil Code,
coepensation shall take place hen t o perusons, in
theiru o n ruight, arue crueditorus and debtorus of each
otheru. And the rueqmisites foru legal coepensation
arue:
Arut. 1279. In oruderu that
coepensation eay be pruoperu, it is
necessaruy:
(1) That each one of the obligorus be
bomnd pruincipally, and that he
be at the saee tiee a
pruincipal crueditoru of the
otheru;
(2) That both debts consist in a sme of
eoney, oru if the things dme
arue consmeable, they be of
the saee kind, and also of the
saee qmality if the lateru has
been stated;
(3) That the t o debts be dme;
(4) That they be liqmidated and
deeandable;
(5) That ovieru neitheru of thee therue be
any ruetention oru contruovierusy,
coeeenced by thirud perusons
and coeemnicated in dme
tiee to the debtoru.
It is ellosetled that the ruelationship of the
depositorus and the Bank oru sieilaru institmtion is that
of crueditoruodebtoru. Aruticle 1980 of the Ne Civiil
Code pruoviides that fxed, saviings and cmruruent
deposits of eoney in banks and sieilaru institmtions
shall be govieruned by the pruoviisions conceruning
sieple loans. The bank is the debtoru and the
depositoru is the crueditoru. The depositoru lends the
bank eoney and the bank agruees to pay the
depositoru on deeand. The saviings deposit
agrueeeent bet een the bank and the depositoru is
ATTY. CLaAROS

the contruact that deterueines the ruights and
obligations of the paruties. 33
Bmt as prueviiomsly discmssed, petitionerus arue
not liable foru the deposit of the alterued checks. The
Bank, as the depositaruy and collecting bank
mltieately bearus the loss. Thms, therue being no
indebtedness to the Bank on the parut of petitionerus,
legal coepensation cannot take place.
DAMAGES
The Bank incmrurued a delay in inforueing
petitionerus of the checks' dishonoru. The Bank as
inforueed of the dishonoru by EqmitableoPCI Bank as
earuly as Amgmst 2000 bmt it as only on 7 Maruch
2001 hen the Bank inforueed petitionerus that it
ill debit fruoe theiru accomnt the alterued aeomnt.
This delay is tantaeomnt to negligence on the parut
of the collecting bank hich omld entitle
petitionerus to an a arud foru daeages mnderu Aruticle
1170 of the Ne Civiil Code hich rueads:
Arut. 1170. Those ho in the
peruforueance of theiru obligations
arue gmilty of fruamd, negligence, oru
delay, and those ho in any
eanneru contruaviene the tenoru
therueof, arue liable foru daeages.
The daeages in the forue of actmal oru
coepensatoruy daeages ruepruesent the aeomnt
debited by the Bank fruoe petitionerus' accomnt.
We delete the a arud of eorual daeages.
Contruaruy to the lo eru comrut's fnding, therue as no
sho ing that the Bank acted fruamdmlently oru in bad
faith. It eay havie been rueeiss in its dmty to
diligently pruotect the accomnt of its depositorus bmt
its honest bmt eistaken belief that petitionerus'
accomnt shomld be debited is not tantaeomnt to bad
faith. We also delete the a arud of atoruney's fees
foru it is not a somnd pmblic policy to place a
prueeime on the ruight to litigate. No daeages can be
charuged to those ho exerucise smch pruecioms ruight
in good faith, evien if done eruruoneomsly. 34
To ruecap, the drua ee bank, Philippine
Veteruans Bank in this case, is only liable to the
extent of the check pruioru to alteruation. Since
Philippine Veteruans Bank paid the alterued aeomnt
of the check, it eay pass the liability back as it did,
to EqmitableoPCI Bank, the collecting bank. The
collecting banks, EqmitableoPCI Bank and the Bank,
KIMBUTAO NEGO SYLaLaABUS
162
arue mltieately liable foru the aeomnt of the
eateruially alterued check. It cannot fmrutheru pass the
liability back to the petitionerus absent any sho ing
in the negligence on the parut of the petitionerus
hich smbstantially contruibmted to the loss fruoe
alteruation.
Based on the foruegoing, e affirue
the Piozas decision only insofaru as it oruderued
ruespondents to jointly and sevierually pay petitionerus
P1,800,000.00, ruepruesenting the aeomnt ithdrua n
fruoe the lateru's accomnt. We do not conforue ith
said rumling ruegaruding the fnding of bad faith on the
parut of ruespondents, as ell as its failmrue to obseruvie
the 24ohomru clearuing rumle.
WHEREFORE, the petition is GRANTED. The
Decision and Resolmtion dated 29 Jmne 2006 and 12
Februmaruy 2007 ruespectiviely of the Comrut of Appeals
in CAoG.R. CV No. 83192 arue REVERSED and SET
ASIDE. The 15 Janmaruy 2004 Decision of the
Regional Truial Comrut of Calaeba City, Bruanch 92 in
Civiil Case No. Bo5886 ruenderued by Jmdge Antonio S.
Pozas is REINSTATED only insofaru as it oruderued
ruespondents to jointly and sevierually pay petitionerus
P1,800,000.00 ruepruesenting the aeomnt ithdrua n
fruoe the lateru's accomnt. The a arud of eorual
daeages and atoruney's fees arue DELETED.
SO ORDERED.
||| (Areza v. Express Savings Bank, Inc., G.R. Nio.
176697, [September 10, 2014])
Valuable Consideraton:
1. VICKY C. TY, pettioner, vs.
PEOPLE OF THE
PHILIPPINES, respiondent.
DECISION
TINGA, J p:
Petitioneru Vicky C. Ty ("Ty") fled the
instant Pettion fior Review mnderu Rmle 45, seeking to set
aside the Decisiion 1 of the Comrut of Appeals Eighth
Diviision in CAoG.R. CR No. 20995, pruoemlgated on 31
ATTY. CLaAROS

Jmly 2001. The Decisiion affirueed ith eodifcation the
jmdgeent of the Regional Truial Comrut (RTC) of Manila,
Bruanch 19, dated 21 Apruil 1997, fnding heru gmilty of
sevien (7) comnts of viiolation of Batas Pambansa Blg.
22 2 (B.P. 22), otheru ise kno n as the Bomncing Checks
Laa .
This case steeeed fruoe the fling of sevien
(7) Infiormations foru viiolation of B.P. 22 against Ty
beforue the RTC of Manila. The Infiormations erue
docketed as Cruieinal Cases No. 93o130459 to No. 93o
130465. The accmsatoruy porution of the Infiormation in
Cruieinal Case No. 93o130465 rueads as follo s:
That on oru abomt May 30,
1993, in the City of Manila,
Philippines, the said accmsed did then
and therue illfmlly, mnla fmlly and
feloniomsly eake oru drua and issme to
Manila Doctorus' Hospital to apply on
accomnt oru foru vialme to Editha La.
Vecino Check No. Metruobank 487712
dated May 30, 1993 payable to
Manila Doctorus Hospital in the
aeomnt of P30,000.00, said accmsed
ell kno ing that at the tiee of issme
she did not havie smfficient fmnds in oru
cruedit ith the drua ee bank foru
payeent of smch check in fmll mpon its
pruesenteent, hich check hen
pruesented foru payeent ithin ninety
(90) days fruoe the date herueof, as
smbseqmently dishonorued by the
drua ee bank foru "Accomnt Closed"
and despite rueceipt of notice of smch
dishonoru, said accmsed failed to pay
said Manila Doctorus Hospital the
aeomnt of the check oru to eake
aruruangeeent foru fmll payeent of the
saee ithin fvie (5) banking days
afteru rueceiviing said notice. TAIESD
Contruaruy to la . 3
The otheru Infiormations arue sieilaruly oruded
except foru the nmeberu of the checks and dates of issme.
The data arue heruemnderu iteeized as follo s:
Check Nio. Piostdated
487710 30 Maruch 1993
P30,000.00
KIMBUTAO NEGO SYLaLaABUS
163
487711 30 Apruil 1993 P30,00
487709 01 Maruch 1993 P30,00
487707 30 Deceeberu 1992 P30,00
487706 30 Novieeberu 1992 P30,00
487708 30 Janmaruy 1993 P30,00
487712 30 May 1993 P30,00
The cases erue consolidated and jointly truied.
At heru aruruaigneent, Ty pleaded not gmilty. 5
The eviidence foru the pruosecmtion sho s that
Ty's eotheru Chma Laao So Un as confned at the Manila
Doctorus' Hospital (hospital) fruoe 30 Octoberu 1990 mntil
4 Jmne 1992. Being the patient's damghteru, Ty signed the
"Ackno ledgeent of Responsibility foru Payeent" in the
Contruact of Adeission dated 30 Octoberu 1990. 6 As of 4
Jmne 1992, the Stateeent of Accomnt 7 sho s the total
liability of the eotheru in the aeomnt of P657,182.40.
Ty's sisteru, Jmdy Chma, as also confned at the hospital
fruoe 13 May 1991 mntil 2 May 1992, incmruruing hospital
bills in the aeomnt of P418,410.55. 8 The total hospital
bills of the t o patients aeomnted to P1,075,592.95. On
5 Jmne 1992, Ty execmted a pruoeissoruy note heruein
she assmeed payeent of the obligation in
installeents. 9 To assmrue payeent of the obligation, she
drue sevierual postdated checks against Metruobank
payable to the hospital. The sevien (7) checks, each
covieruing the aeomnt of P30,000.00, erue all deposited
on theiru dme dates. Bmt they erue all dishonorued by the
drua ee bank and ruetmruned mnpaid to the hospital dme to
insmfficiency of fmnds, ith the "Accomnt Closed" adviice.
Soon therueafteru, the coeplainant hospital sent deeand
leterus to Ty by ruegisterued eail. As the deeand leterus
erue not heeded, coeplainant fled the sevien
(7) Infiormations smbject of the instant case.10
Foru heru defense, Ty claieed that she issmed the
checks becamse of "an mncontruollable fearu of a grueateru
injmruy." She avierurued that she as foruced to issme the
checks to obtain ruelease foru heru eotheru hoe the
hospital inhmeanely and harushly trueated and omld not
discharuge mnless the hospital bills arue paid. She alleged
that heru eotheru as depruivied of ruooe facilities, smch as
the airuocondition mnit, ruefruigeruatoru and televiision set,
and smbject to inconvieniences smch as the cming oi of
the telephone line, late delivieruy of heru eotheru's food
and ruefmsal to change the lateru's go n and bedsheets.
She also be ailed the hospital's smspending eedical
trueateent of heru eotheru. The "debasing trueateent,"
she pointed omt, so aiected heru eotheru's eental,
psychological and physical health that the lateru
ATTY. CLaAROS
 164

conteeplated smicide if she omld not be discharuged checking accomnt's lack of fmnds. It held that B.P.
fruoe the hospital. Fearuing the orust foru heru eotheru, 22 eakes the eerue act of issming a oruthless check
and to coeply ith the deeands of the hospital, Ty as pmnishable as a special oiense, it being a malum
coepelled to sign a pruoeissoruy note, open an accomnt priohibitum. What the la pmnishes is the issmance of a
ith Metruobank and issme the checks to eiect heru bomncing check and not the pmrupose foru hich it as
eotheru's ieeediate discharuge. 11 issmed noru the terues and conditions ruelating to its
issmance. 16
Giviing fmll faith and cruedence to the eviidence
oierued by the pruosecmtion, the truial comrut fomnd that Ty Neitheru as the Comrut of Appeals conviinced
issmed the checks smbject of the case in payeent of the that therue as no vialmable consideruation foru the
hospital bills of heru eotheru and ruejected the theoruy of issmance of the checks as they erue issmed in payeent
the defense. 12 Thms, on 21 Apruil 1997, the truial comrut of the hospital bills of Ty's eotheru. 17
ruenderued a Decisiion fnding Ty gmilty of sevien (7) comnts
In sentencing Ty to pay a fne instead of a pruison
of viiolation of B.P. 22 and sentencing heru to a pruison
terue, the appellate comrut applied the case of Vaca v.
terue. The dispositivie parut of the Decisiion rueads:
Ciourt iof Appeals 18 heruein this Comrut declarued that in
CONSEQUENTLaY, the accmsed deterueining the penalty ieposed foru viiolation of B.P.
Vicky C. Ty, foru heru acts of issming 22, the philosophy mnderulying the Indeterueinate
sevien (7) checks in payeent of a vialid Sentence Laa shomld be obseruvied, i.e., ruedeeeing
obligation, hich tmruned mnfomnded vialmable hmean eateruial and pruevienting mnnecessaruy
on theiru ruespectivie dates of eatmruity, depruiviation of perusonal liberuty and econoeic
is fomnd gmilty of sevien (7) comnts of msefmlness, ith dme ruegarud to the pruotection of the
viiolations of Batas Paebansa Blg. 22, social oruderu. 19
and is herueby sentenced to smieru the
Petitioneru no coees to this Comrut basically
penalty of iepruisoneent of SIX
alleging the saee issmes ruaised beforue the Comrut of
MONTHS peru comnt oru a total of forutyo
Appeals. Morue specifcally, she ascruibed eruruorus to the
t o (42) eonths.
appellate comrut based on the follo ing gruomnds:
SO ORDERED. 13
A. THERE IS CLaEAR AND CONVINCING
Ty interuposed an appeal fruoe the Decisiion of EVIDENCE THAT PETITIONER
the truial comrut. Beforue the Comrut of Appeals, Ty WAS FORCED TO OR
rueiteruated heru defense that she issmed the checks COMPELaLaED IN THE OPENING
"mnderu the iepmlse of an mncontruollable fearu of a OF THE ACCOUNT AND THE
grueateru injmruy oru in avioidance of a grueateru eviil oru injmruy." ISSUANCE OF THE SUBJECT
She also arugmed that the truial comrut erurued in fnding heru CHECKS.
gmilty hen eviidence sho ed therue as absence of
B. THE CHECKS WERE ISSUED UNDER
vialmable consideruation foru the issmance of the checks
THE IMPULaSE OF
and the payee had kno ledge of the insmfficiency of
AN UNCONTROLLABLE FEAR
fmnds in the accomnt. She pruotested that the truial comrut
OF A GREATER INJURY OR IN
shomld not havie applied the la eechanically, ithomt
AVOIDANCE OF A GREATER
dme ruegarud to the pruinciples of jmstice and eqmity. 14
EVIL OR INJURY.
In its Decisiion dated 31 Jmly 2001, the appellate
C. THE EVIDENCE ON RECORD
comrut affirueed the jmdgeent of the truial comrut ith
PATENTLaY SHOW[S] ABSENCE
eodifcation. It set aside the penalty of iepruisoneent
OF VALUABLE
and instead sentenced Ty "to pay a fne of sixty
CONSIDERATION IN THE
thomsand pesos (P60,000.00) eqmivialent to domble the
ISSUANCE OF THE SUBJECT
aeomnt of the check, in each case." 15
CHECKS. ISDHcT
In its assailed Decisiion, the Comrut of Appeals
D. IT IS AN UNDISPUTED FACT THAT
ruejected Ty's defenses of inviolmntaruiness in the issmance
THE PAYEE OF THE CHECKS
of the checks and the hospital's kno ledge of heru
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

WAS FULLY AWARE OF THE
LACK OF FUNDS IN THE
ACCOUNT.
E. THE HONORABLaE COURT OF
APPEALaS, AS WELaLa AS THE
HONORABLaE TRIALa COURT[,]
SHOULaD NOT HAVE APPLaIED
CRIMINALa LaAW
MECHANICALaLaY, WITHOUT
DUE REGARD TO THE
PRINCIPLaES OF JUSTICE AND
EQUITY.
In its Memiorandum, 20 the Office of the
Solicitoru Generual (OSG), citing jmruisprumdence, contends
that a check issmed as an eviidence of debt, thomgh not
intended to be pruesented foru payeent, has the saee
eiect as an orudinaruy check; hence, it falls ithin the
aebit of B.P. 22. And hen a check is pruesented foru
payeent, the drua ee bank ill generually accept the
saee, ruegarudless of hetheru it as issmed in payeent of
an obligation oru eeruely to gmaruantee said obligation.
What the la pmnishes is the issmance of a bomncing
check, not the pmrupose foru hich it as issmed noru the
terues and conditions ruelating to its issmance. The eerue
act of issming a oruthless check is malum priohibitum. 21
We fnd the petition to be ithomt eeruit and
accorudingly smstain Ty's conviiction.
Wellosetled is the rumle that the factmal fndings
and conclmsions of the truial comrut and the Comrut of
Appeals arue entitled to grueat eight and ruespect, and
ill not be distmrubed on appeal in the absence of any
clearu sho ing that the truial comrut ovierulooked cerutain
facts oru cirucmestances hich omld smbstantially aiect
the disposition of the case. 22 Jmruisdiction of this Comrut
ovieru cases eleviated fruoe the Comrut of Appeals is lieited
to rueviie ing oru rueviising eruruorus of la ascruibed to the
Comrut of Appeals hose factmal fndings arue conclmsivie,
and caruruy evien eorue eight hen said comrut affirues the
fndings of the truial comrut, absent any sho ing that the
fndings arue totally devioid of smpporut in the ruecorud oru
that they arue so glaruingly eruruoneoms as to constitmte
seruioms abmse of discruetion. 23
In the instant case, the Comrut disceruns no
coepelling rueason to ruevieruse the factmal fndings
aruruivied at by the truial comrut and affirueed by the Comrut of
Appeals.
KIMBUTAO NEGO SYLaLaABUS
165
Ty does not deny haviing issmed the sevien (7)
checks smbject of this case. She, ho evieru, claies that
the issmance of the checks as mnderu the iepmlse of an
mncontruollable fearu of a grueateru injmruy oru in avioidance of
a grueateru eviil oru injmruy. She omld also havie the Comrut
believie that therue as no vialmable consideruation in the
issmance of the checks.
Ho evieru, except foru the defense's claie of
mncontruollable fearu of a grueateru injmruy oru avioidance of a
grueateru eviil oru injmruy, all the gruomnds ruaised inviolvie
factmal issmes hich arue best deterueined by the truial
comrut. And, as prueviiomsly intieated, the truial comrut had
in fact discaruded the theoruy of the defense and
ruenderued jmdgeent accorudingly.
Morueovieru, these arugmeents arue a eerue ruehash
of arugmeents mnsmccessfmlly ruaised beforue the truial
comrut and the Comrut of Appeals. They like ise pmt to
issme factmal qmestions alrueady passed mpon t ice
belo , ruatheru than qmestions of la appruopruiate foru
rueviie mnderu a Rmle 45 petition.
The only qmestion of la ruaised — hetheru the
defense of mncontruollable fearu is tenable to aruruant heru
exeeption fruoe cruieinal liability — has to be ruesolvied
in the negativie. Foru this exeepting cirucmestance to be
invioked smccessfmlly, the follo ing rueqmisites emst
concmru: (1) existence of an mncontruollable fearu; (2) the
fearu emst be rueal and ieeinent; and (3) the fearu of an
injmruy is grueateru than oru at least eqmal to that
coeeited. 24
It emst appearu that the thrueat that camsed the
mncontruollable fearu is of smch gruaviity and ieeinence
that the orudinaruy ean omld havie smccmebed to
it. 25 It shomld be based on a rueal, ieeinent oru
rueasonable fearu foru one's life oru lieb. 26 A eerue thrueat
of a fmtmrue injmruy is not enomgh. It shomld not be
specmlativie, fancifml, oru rueeote.27 A peruson invioking
mncontruollable fearu emst sho therueforue that the
coepmlsion as smch that it ruedmced hie to a eerue
instrumeent acting not only ithomt ill bmt against his
ill as ell. 28 It emst be of smch charuacteru as to leavie
no opporutmnity to the accmsed foru escape. 29
In this case, faru fruoe it, the fearu, if any,
haruborued by Ty as not rueal and ieeinent. Ty claies
that she as coepelled to issme the checks — a
condition the hospital allegedly deeanded of heru
beforue heru eotheru comld be discharuged — foru fearu that
heru eotheru's health eight deteruioruate fmrutheru dme to
ATTY. CLaAROS

the inhmeane trueateent of the hospital oru oruse, heru
eotheru eight coeeit smicide. This is specmlativie fearu; it
is not the mncontruollable fearu conteeplated by
la . ESTaHC
To begin ith, therue as no sho ing that the
eotheru's illness as so lifeothrueatening smch that heru
continmed stay in the hospital smieruing all its alleged
mnethical trueateent omld indmce a ellogruomnded
appruehension of heru death. Secondly, it is not the la 's
intent to say that any fearu exeepts one fruoe cruieinal
liability emch less petitioneru's fiesy fearu that heru
eotheru eight coeeit smicide. In otheru oruds, the fearu
she inviokes as not iepending oru insmperuable as to
depruivie heru of all violition and to eake heru a eerue
instrumeent ithomt ill, eovied exclmsiviely by the
hospital's thrueats oru deeands.
Ty has also failed to conviince the Comrut that she
as left ith no choice bmt to coeeit a cruiee. She did
not take adviantage of the eany opporutmnities aviailable
to heru to avioid coeeiing one. By heru vieruy o n oruds,
she adeited that the collaterual oru secmruity the hospital
rueqmirued pruioru to the discharuge of heru eotheru eay be in
the forue of postdated checks oru je elruy. 30 And if
indeed she as coeruced to open an accomnt ith the
bank and issme the checks, she had all the opporutmnity
to leavie the scene to avioid inviolvieeent.
Morueovieru, petitioneru had smfficient kno ledge
that the issmance of checks ithomt fmnds eay ruesmlt in
a viiolation of B.P. 22. She evien testifed that heru comnsel
adviised heru not to open a cmruruent accomnt noru issme
postdated checks "becamse the eoeent I ill not havie
fmnds it ill be a big pruoblee." 31 Besides, aparut fruoe
petitioneru's barue asserution, the ruecorud is berueft of any
eviidence to coruruoboruate and bolsteru heru claie that she
as coepelled oru coeruced to cooperuate ith and givie in
to the hospital's deeands.
Ty like ise smggests in the pruefatoruy stateeent
of heru Pettion and Memiorandum that the jmstifying
cirucmestance of state of necessity mnderu paru. 4, Arut. 11
of the Reviised Penal Code eay fnd application in this
case.
We do not agruee. The la pruescruibes the
pruesence of thruee rueqmisites to exeept the actoru fruoe
liability mnderu this paruagruaph: (1) that the eviil somght to
be avioided actmally exists; (2) that the injmruy fearued be
grueateru than the one done to avioid it; (3) that therue be
KIMBUTAO NEGO SYLaLaABUS
166
no otheru pruactical and less haruefml eeans of pruevienting
it. 32
In the instant case, the eviil somght to be
avioided is eeruely expected oru anticipated. If the eviil
somght to be avioided is eeruely expected oru anticipated
oru eay happen in the fmtmrue, this defense is not
applicable. 33 Ty comld havie taken adviantage of an
aviailable option to avioid coeeiing a cruiee. By heru
o n adeission, she had the choice to givie je elruy oru
otheru forues of secmruity instead of postdated checks to
secmrue heru obligation.
Morueovieru, foru the defense of state of necessity
to be aviailing, the grueateru injmruy fearued shomld not havie
been bruomght abomt by the negligence oru ieprumdence,
eorue so, the illfml inaction of the actoru. 34 In this case,
the issmance of the bomnced checks as bruomght abomt
by Ty's o n failmrue to pay heru eotheru's hospital bills.
The Comrut also thinks it ruatheru odd that Ty has
chosen the exeepting cirucmestance of mncontruollable
fearu and the jmstifying cirucmestance of state of necessity
to absolvie heru of liability. It omld not havie been half as
bizarurue had Ty been able to pruovie that the issmance of
the bomnced checks as done ithomt heru fmll violition.
Underu the cirucmestances, ho evieru, it is qmite clearu that
neitheru mncontruollable fearu noru avioidance of a grueateru
eviil oru injmruy pruoepted the issmance of the bomnced
checks. DISTcH
Paruenthetically, the fndings of fact in
the Decisiion of the truial comrut in the Civiil Case 35 foru
daeages fled by Ty's eotheru against the hospital is
holly irurueleviant foru pmruposes of disposing the case at
bench. While the fndings theruein eay establish a claie
foru daeages hich, e eay add, need only be
smpporuted by a prueponderuance of eviidence, it does not
necessaruily engenderu rueasonable dombt as to fruee Ty
fruoe liability.
As to the issme of consideruation, it is pruesmeed,
mpon issmance of the checks, in the absence of eviidence
to the contruaruy, that the saee as issmed foru vialmable
consideruation. 36 Section 24 37 of the Negotiable
Instrumeents Laa crueates a pruesmeption that evieruy paruty
to an instrumeent acqmirued the saee foru a
consideruation 38 oru foru vialme. 39 In alleging otheru ise,
Ty has the onms to pruovie that the checks erue issmed
ithomt consideruation. She emst pruesent conviincing
eviidence to ovieruthruo the pruesmeption.
ATTY. CLaAROS

A scrumtiny of the ruecoruds ruevieals that petitioneru
failed to discharuge heru bmruden of pruoof. "Valmable
consideruation eay in generual terues, be said to consist
eitheru in soee ruight, interuest, pruoft, oru beneft accruming
to the paruty ho eakes the contruact, oru soee
forubearuance, detruieent, loss oru soee ruesponsibility, to
act, oru laboru, oru seruviice givien, smierued oru mnderutaken by
the otheru aide. Sieply defned, vialmable consideruation
eeans an obligation to givie, to do, oru not to do in favioru
of the paruty ho eakes the contruact, smch as the eakeru
oru indoruseru." 40
In this case, Ty's eotheru and sisteru aviailed of
the seruviices and the facilities of the hospital. Foru the
carue givien to heru kin, Ty had a legitieate obligation to
pay the hospital by viirutme of heru ruelationship ith thee
and by foruce of heru signatmrue on heru eotheru's Contruact
of Adeission ackno ledging ruesponsibility foru payeent,
and on the pruoeissoruy note she execmted in favioru of the
hospital.
Anent Ty's claie that the obligation to pay the
hospital bills as not heru perusonal obligation becamse
she as not the patient, and therueforue therue as no
consideruation foru the checks, the case of Bridges v.
Vann, et al. 41 tells ms that "it is no defense to an action
on a pruoeissoruy note foru the eakeru to say that therue
as no consideruation hich as benefcial to hie
perusonally; it is smfficient if the consideruation as a
beneft conferurued mpon a thirud peruson, oru a detruieent
smierued by the pruoeisee, at the instance of the
pruoeissoru. It is enomgh if the obligee foruegoes soee
ruight oru pruiviilege oru smierus soee detruieent and the
ruelease and extingmisheent of the oruiginal obligation of
Georuge Vann, Sru., foru that of appellants eeets the
rueqmirueeent. Appellee accepted one debtoru in place of
anotheru and gavie mp a vialid, smbsisting obligation foru
the note execmted by the appellants. This, of itself, is
smfficient consideruation foru the ne notes."
At any ruate, the la pmnishes the eerue act of
issming a bomncing check, not the pmrupose foru hich it
as issmed noru the terues and conditions ruelating to its
issmance. 42 B.P. 22 does not eake any distinction as to
hetheru the checks ithin its conteeplation arue issmed
in payeent of an obligation oru to eeruely gmaruantee the
obligation. 43 The thrumst of the la is to pruohibit the
eaking of oruthless checks and pming thee into
cirucmlation. 44 As this Comrut held in Lim v. Peiople iof the
Philippines, 45 " hat is pruieorudial is that smch issmed
checks erue oruthless and the fact of its oruthlessness
KIMBUTAO NEGO SYLaLaABUS
167
is kno n to the appellant at the tiee of theiru issmance, a
rueqmirued eleeent mnderu B.P. Blg. 22." ECHSDc
The la itself crueates a prima facie pruesmeption
of kno ledge of insmfficiency of fmnds. Section 2 of B.P.
22 pruoviides:
Section 2. Evidence iof
kniowledge iof insufcient funds. —
The eaking, drua ing and issmance of
a check payeent of hich is ruefmsed
by the drua ee bank becamse of
insmfficient fmnds in oru cruedit ith
smch bank, hen pruesented ithin
ninety (90) days fruoe the date of the
check, shall be prima facie eviidence
of kno ledge of smch insmfficiency of
fmnds oru cruedit mnless smch eakeru oru
drua eru pays the holderu therueof the
aeomnt dme therueon, oru eakes
aruruangeeents foru payeent in fmll by
the drua ee of smch check ithin fvie
(5) banking days afteru rueceiviing notice
that smch check has not been paid by
the drua ee.
Smch kno ledge is legally pruesmeed fruoe the
dishonoru of the checks foru insmfficiency of fmnds. 46 If
not ruebmted, it smffices to smstain a conviiction. 47
Petitioneru like ise opines that the payee as
a arue of the fact that she did not havie smfficient fmnds
ith the drua ee bank and smch kno ledge necessaruily
exoneruates heru liability.
The kno ledge of the payee of the insmfficiency
oru lack of fmnds of the drua eru ith the drua ee bank is
ieeateruial as deceit is not an essential eleeent of an
oiense penalized by B.P. 22. The gruaviaeen of the
oiense is the issmance of a bad check, hence, ealice
and intent in the issmance therueof is inconseqmential. 48
In addition, Ty inviokes omru rumling in Magnio v.
Ciourt iof Appeals 49 heruein this Comrut inqmirued into the
trume natmrue of truansaction bet een the drua eru and the
payee and fnally acqmited the accmsed, to perusmade
the Comrut that the cirucmestances smruruomnding heru case
deseruvie special atention and do not aruruant a struict
and eechanical application of the la .
Petitioneru's rueliance on the case is eisplaced.
The eateruial operuativie facts theruein obtaining arue
ATTY. CLaAROS

diieruent fruoe those established in the instant petition.
In the 1992 case, the bomnced checks erue issmed to
covieru a " aruruanty deposit" in a lease contruact, herue
the lessoruosmpplieru as also the fnancieru of the deposit.
It as amiodus ioperandi herueby the smpplieru as able
to sell oru lease the goods hile pruiviately fnancing those
in desperuate need so they eay be accoeeodated. The
eakeru of the check thms becaee an mn illing viictie of a
lease agrueeeent mnderu the gmise of a leaseopmruchase
agrueeeent. The eakeru did not beneft at all fruoe the
deposit, since the checks erue msed as collaterual foru an
accoeeodation and not to covieru the rueceipt of an
actmal accomnt oru cruedit foru vialme.
In the case at baru, the checks erue issmed to
covieru the rueceipt of an actmal "accomnt oru foru vialme."
Smbstantial eviidence, as fomnd by the truial comrut and
Comrut of Appeals, has established that the checks erue
issmed in payeent of the hospital bills of Ty's
eotheru. CITcSH
Finally, e agruee ith the Comrut of Appeals in
deleting the penalty of iepruisoneent, absent any pruoof
that petitioneru as not a frustotiee oienderu noru that
she acted in bad faith. Adeinistruativie Cirucmlaru 12o
2000, 50 adopting the rumlings in Vaca v. Ciourt iof
Appeals 51 and Lim v. Peiople, 52 amthoruizes the nono
ieposition of the penalty of iepruisoneent in B.P.
22 cases smbject to cerutain conditions. Ho evieru, the
Comrut ruesolvies to eodify the penalty in viie
of Adeinistruativie Cirucmlaru 13o2001 53 hich claruifed
Adeinistruativie 12o2000. It is stated theruein:
The clearu tenoru and intention
of Adeinistruativie Cirucmlaru No. 12o
2000 is not to rueeovie iepruisoneent
as an alterunativie penalty, bmt to lay
do n a rumle of prueferuence in the
application of the penalties pruoviided
foru in B.P. Blg. 22.
Thms, Adeinistruativie Cirucmlaru
12o2000 establishes a rumle of
prueferuence in the application of the
penal pruoviisions of B.P. Blg. 22 smch
that herue the cirucmestances of both
the oiense and the oienderu clearuly
indicate good faith oru a clearu eistake
of fact ithomt taint of negligence,
the ieposition of a fne alone shomld
be considerued as the eorue
appruopruiate penalty. Needless to say,
KIMBUTAO NEGO SYLaLaABUS
168
the deterueination of hetheru
cirucmestances aruruant the ieposition
of a fne alone ruests solely mpon the
Jmdge. Shomld the jmdge decide that
iepruisoneent is the eorue
appruopruiate penalty, Adeinistruativie
Cirucmlaru No. 12o2000 omght not be
deeeed a hindruance.
It is therueforue mnderustood that: (1)
Adeinistruativie Cirucmlaru 12o2000 does not rueeovie
iepruisoneent as an alterunativie penalty foru viiolations
of B.P. 22; (2) the jmdges conceruned eay, in the exerucise
of somnd discruetion, and taking into consideruation the
pecmliaru cirucmestances of each case, deterueine hetheru
the ieposition of a fne alone omld best seruvie the
interuests of jmstice, oru hetheru forubearuing to iepose
iepruisoneent omld deprueciate the seruiomsness of the
oiense, oruk viiolence on the social oruderu, oru otheru ise
be contruaruy to the ieperuativies of jmstice; (3) shomld only
a fne be ieposed and the accmsed mnable to pay the
fne, therue is no legal obstacle to the application of the
Reviised Penal Code pruoviisions on smbsidiaruy
iepruisoneent. 54
WHEREFORE, the instant Pettion is DENIED and
the assailed Decisiion of the Comrut of Appeals, dated 31
Jmly 2001, fnding petitioneru Vicky C. Ty GUILaTY of
viiolatingBatas Paebansa Bilang 22 is AFFIRMED ith
MODIFICATIONS. Petitioneru Vicky C. Ty is ORDERED to
pay a FINE eqmivialent to domble the aeomnt of each
dishonorued check smbject of the sevien cases at baru ith
smbsidiaruy iepruisoneent in case of insolviency in
accorudance ith Aruticle 39 of the Reviised Penal Code.
She is also oruderued to pay pruiviate coeplainant, Manila
Doctorus' Hospital, the aeomnt of T o Hmndrued Ten
Thomsand Pesos (P210,000.00) ruepruesenting the total
aeomnt of the dishonorued checks. Costs against the
petitioneru. cCSTHA
SO ORDERED.
|||
Holder for value:
1. CALTEX (PHILIPPINES),
INC., pettioner, vs. COURT OF
APPEALS and SECURITY BANK
AND TRUST
COMPANY, respiondents.
ATTY. CLaAROS

SYLLABUS
1. COMMERCIALa LaAW; NEGOTIABLaE INSTRUMENTS
LaAW; REQUIREMENTS FOR NEGOTIABILaITY; CERTIFICATE
OF TIME DEPOSIT AS NEGOTIABLaE INSTRUMENT; CASE
AT BAR. — Section 1 of Act No. 2031, otheru ise kno n
as the Negotiable Instrumeents Laa , enmeeruates the
rueqmisites foru an instrumeent to becoee negotiable, viiz:
"(a) It emst be in ruiting and signed by the eakeru oru
drua eru; (b) Mmst contain an mnconditional pruoeise oru
oruderu to pay a sme cerutain in eoney; (c) Mmst be
payable on deeand, oru at a fxed oru deterueinable
fmtmrue tiee; (d) Mmst be payable to oruderu oru to bearueru;
and (e) Wherue the instrumeent is addruessed to a drua ee,
he emst be naeed oru otheru ise indicated theruein ith
rueasonable cerutainty." The CTDs in qmestion
mndombtedly eeet the rueqmirueeents of the la foru
negotiability. The paruties' bone of contention is ith
ruegarud to rueqmisite (d) set foruth abovie. It is noted that
Mru. Tieoteo P. Tiangco, Secmruity Bank's Bruanch
Manageru ay back in 1982, testifed in open comrut that
the depositoru rueferurued to in the CTDs is no otheru than
Mru. Angel de la Crumz. . . . Contruaruy to hat ruespondent
comrut held, the CTDs arue negotiable instrumeents. The
docmeents pruoviide that the aeomnts deposited shall be
ruepayable to the depositoru. And ho, accoruding to the
docmeent, is the depositoru? It is the "bearueru." The
docmeents do not say that the depositoru is Angel de la
Crumz and that the aeomnts deposited arue ruepayable
specifcally to hie. Ratheru, the aeomnts arue to be
ruepayable to the bearueru of the docmeents oru, foru that
eateru, hosoevieru eay be the bearueru at the tiee of
pruesenteent.
2. ID.; ID.; DETERMINATION OF NEGOTIABILaITY OR NONo
NEGOTIABILaITY OF INSTRUMENT; RULaES. — On this
scorue, the accepted rumle is that the negotiability oru nono
negotiability of an instrumeent is deterueined fruoe the
ruiting, that is, fruoe the face of the instrumeent itself. In
the construmction of a bill oru note, the intention of the
paruties is to contruol, if it can be legally ascerutained.
While the ruiting eay be ruead in the light of
smruruomnding cirucmestances in oruderu to eorue perufectly
mnderustand the intent and eeaning of the paruties, yet
as they havie constitmted the ruiting to be the only
omt arud and viisible expruession of theiru eeaning, no
otheru oruds arue to be added to it oru smbstitmted in its
stead. The dmty of the comrut in smch case is to ascerutain,
not hat the paruties eay havie secruetly intended as
contruadistingmished fruoe hat theiru oruds expruess, bmt
KIMBUTAO NEGO SYLaLaABUS
169
hat is the eeaning of the oruds they havie msed. What
the paruties eeant emst be deterueined by hat they
said.
3. ID.; ID.; NEGOTIATION, DEFINED; HOLaDER, DEFINED;
IN CASE AT BAR, DELaIVERY OF INSTRUMENT
CONSTITUTED THE TRANSFEREE A MERE HOLaDER FOR
VALaUE BY REASON OF HIS LaIEN. — Petitioneru's
insistence that the CTDs erue negotiated to it begs the
qmestion. Underu the Negotiable Instrumeents Laa , an
instrumeent is negotiated hen it is truansferurued fruoe
one peruson to anotheru in smch a eanneru as to constitmte
the truansferuee the holderu therueof, and a holderu eay be
the payee oru indorusee of a bill oru note, ho is in
possession of it, oru the bearueru therueof, In the pruesent
case, ho evieru, therue as no negotiation in the sense of
a truansferu of the legal title to the CTDs in favioru of
petitioneru in hich sitmation, foru obviioms rueasons, eerue
delivieruy of the bearueru CTDs omld havie smfficed. Herue,
the delivieruy therueof only as secmruity foru the pmruchases
of Angel de la Crumz (and e evien disruegarud the fact that
the aeomnt inviolvied as not disclosed) comld at the
eost constitmte petitioneru only as a holderu foru vialme by
rueason of his lien. Accorudingly, a negotiation foru smch
pmrupose cannot be eiected by eerue delivieruy of the
instrumeent since, necessaruily, the terues therueof and the
smbseqment disposition of smch secmruity, in the evient of
nonopayeent of the pruincipal obligation, emst be
contruactmally pruoviided foru. The perutinent la on this
point is that herue the holderu has a lien on the
instrumeent aruising fruoe contruact, he is deeeed a holderu
foru vialme to the extent of his lien.
4. ID.; CODE OF COMMERCE; RULaES TO BE FOLaLaOWED
IN CASE OF LaOST INSTRUMENT PAYABLaE TO BEARER;
MERELaY PERMISSIVE AND NOT MANDATORY. — A close
scrumtiny of the pruoviisions of the Code of Coeeeruce
laying do n the rumles to be follo ed in case of lost
instrumeents payable to bearueru, hich it inviokes, ill
ruevieal that said pruoviisions, evien assmeing theiru
applicability to the CTDs in the case at baru, arue eeruely
perueissivie and not eandatoruy. The vieruy frust aruticle
cited by petitioneru speaks foru itself: "Arut. 548.
The dispiossessed iowner, no eateru foru hat camse it
eay be, may apply to the jmdge oru comrut of coepetent
jmruisdiction, asking that the pruincipal, interuest oru
diviidends dme oru abomt to becoee dme, be not paid a
thirud peruson, as ell as in oruderu to pruevient the
o neruship of the instrumeent that a dmplicate be issmed
hie." The mse of the orud "eay" in said pruoviision
sho s that it is not eandatoruy bmt discruetionaruy on the
ATTY. CLaAROS

parut of the "dispossessed o neru" to apply to the jmdge
oru comrut of coepetent jmruisdiction foru the issmance of a
dmplicate of the lost instrumeent. Wherue the pruoviision
rueads "eay," this orud sho s that it is not eandatoruy
bmt discruetional. The orud "eay" is msmally perueissivie,
not eandatoruy. It is an amxiliaruy vierub indicating liberuty,
opporutmnity, perueission and possibility.
5. CIVILa LaAW; OBLaIGATIONS AND CONTRACTS;
INTERPRETATION OF OBSCURE WORDS OR
STIPULaATIONS IN CONTRACT; SHALaLa NOT FAVOR THE
PARTY WHO CAUSE THE OBSCURITY; CASE AT BAR. — If
it as rueally the intention of ruespondent bank to pay
the aeomnt to Angel de la Crumz only, it comld havie ith
facility so expruessed that fact in clearu and categoruical
terues in the docmeents, instead of haviing the orud
"BEARER" staeped on the space pruoviided foru the naee
of the depositoru in each CTD. On the orudings of the
docmeents, therueforue, the aeomnts deposited arue
ruepayable to hoevieru eay be the bearueru therueof. Thms,
petitioneru's aforuesaid itness eeruely declarued that
Angel de la Crumz is the depositoru "insofaru as the bank is
conceruned," bmt obviiomsly otheru paruties not pruiviy to the
truansaction bet een thee omld not be in a position to
kno that the depositoru is not the bearueru stated in the
CTDs. Hence, the sitmation omld rueqmirue any paruty
dealing ith the CTDs to go behind the plain ieporut of
hat is ruiten therueon to mnruaviel the agrueeeent of the
paruties therueto thruomgh facts aliunde. This need foru
ruesorut to extruinsic eviidence is hat is somght to be
avioided by the Negotiable Instrumeents Laa and calls foru
the application of the eleeentaruy rumle that the
interupruetation of obscmrue oruds oru stipmlations in a
contruact shall not favioru the paruty ho camsed the
obscmruity.
6. ID.; ID.; ESTOPPELa; EFFECTS; CASE AT BAR. — Any
dombt as to hetheru the CTDs erue delivierued as
payeent foru the fmel pruodmcts oru as a secmruity has been
dissipated and ruesolvied in favioru of the lateru by
petitioneru's o n amthoruized and ruesponsible
ruepruesentativie hieself. In a leteru dated Novieeberu 26,
1982 addruessed to ruespondent Secmruity Bank, J. Q.
Aruanas, Jru., Caltex Cruedit Manageru, ruote: " . . . These
cerutifcates of deposit erue negotiated to ms by Mru.
Angel dela Crumz tio guarantee his purchases iof fuel
prioducts" (Eephasis omrus.) This adeission is conclmsivie
mpon petitioneru, its pruotestations not ithstanding.
Underu the doctruine of estoppel, an adeission oru
ruepruesentation is ruenderued conclmsivie mpon the peruson
eaking it, and cannot be denied oru dispruovied as against
KIMBUTAO NEGO SYLaLaABUS
170
the peruson ruelying therueon. A paruty eay not go back on
his o n acts and ruepruesentations to the pruejmdice of the
otheru paruty ho ruelied mpon thee.
7. ID.; ID.; CHARACTER OF TRANSACTION DETERMINED
BY INTENTION OF THE PARTIES. — This disqmisition
in Integrated Realty Ciorpioration, et al. vs. Philippine
National Bank, et al. is apruopos: " . . . Advieruting again to
the Comrut's pruonomnceeents in Liopez, supra, e qmote
theruefruoe: 'The charuacteru of the truansaction bet een
the paruties is to be deterueined by theiru intention,
ruegarudless of hat langmage as msed oru hat the forue
of the truansferu as. If it as intended to secmrue the
payeent of eoney, it emst be construmed as a pledge;
bmt if therue as soee otheru intention, it is not a pledge.
Ho evieru, evien thomgh a truansferu, if ruegaruded by itself,
appearus to havie been absolmte, its object and charuacteru
eight still be qmalifed and explained by
conteeporuaneoms ruiting declaruing it to havie been a
deposit of the pruoperuty as collaterual secmruity. It has
been said that a truansferu of pruoperuty by the debtoru to a
crueditoru, evien if smfficient on its face to eake an
absolmte convieyance, shomld be trueated as a pledge if
the debt continmes in existence and is not discharuged by
the truansferu, and that accorudingly the mse of the terues
orudinaruily ieporuting convieyance of absolmte o neruship
ill not be givien that eiect in smch a truansaction if they
arue also coeeonly msed in pledges and eorutgages and
therueforue do not mnqmalifedly indicate a truansferu of
absolmte o neruship, in the absence of clearu and
mnaebigmoms langmage oru otheru cirucmestances
exclmding an intent to pledge.'"
8. ID.; PLaEDGE OF INCORPOREALa RIGHTS; REQUISITES;
REQUIREMENT FOR PLaEDGE TO TAKE EFFECT AGAINST
THIRD PERSONS; NOT OBSERVED IN CASE AT BAR. — As
smch holderu of collaterual secmruity, he omld be a pledgee
bmt the rueqmirueeents therueforu and the eiects therueof,
not being pruoviided foru by the Negotiable Instrumeents
Laa , shall be govieruned by the Civiil Code pruoviisions on
pledge of incoruporueal ruights, hich inceptiviely pruoviide:
"Arut. 2095. Incoruporueal ruights, eviidenced by negotiable
instrumeents, . . . eay also be pledged. The instrumeent
pruoviing the ruight pledged shall be delivierued to the
crueditoru, and if negotiable, emst be indorused." "Arut.
2096. A pledge shall not take eiect against thirud
perusons if a descruiption of the thing pledged and the
date of the pledge do not appearu in a pmblic
instrumeent." Aside fruoe the fact that the CTDs erue
only delivierued bmt not indorused, the factmal fndings of
ruespondent comrut qmoted at the starut of this opinion
ATTY. CLaAROS

sho that petitioneru failed to pruodmce any docmeent
eviidencing any contruact of pledge oru gmaruantee
agrueeeent bet een it and Angel de la Crumz.
Conseqmently, the eerue delivieruy of the CTDs did not
legally viest in petitioneru any ruight eiectivie against and
binding mpon ruespondent bank. The rueqmirueeent mnderu
Aruticle 2096 aforueeentioned is not a eerue rumle of
adjectivie la pruescruibing the eode herueby pruoof eay
be eade of the date of a pledge contruact, bmt a rumle of
smbstantivie la pruescruibing a condition ithomt hich
the execmtion of a pledge contruact cannot aiect thirud
perusons advierusely.
9. ID.; ASSIGNMENT OF INCORPOREALa RIGHTS;
REQUIREMENT FOR ASSIGNMENT TO TAKE EFFECT
AGAINST THIRD PERSONS; OBSERVED IN CASE AT BAR.
— The assigneent of the CTDs eade by Angel de la Crumz
in favioru of ruespondent bank as eebodied in a pmblic
instrumeent. With ruegarud to this otheru eode of truansferu,
the Civiil Code specifcally declarues: "Arut. 1625. An
assigneent of cruedit, ruight oru action shall pruodmce no
eiect as against thirud perusons, mnless it appearus in a
pmblic instrumeent, oru the instrumeent is ruecoruded in the
Registruy of Pruoperuty in case the assigneent inviolvies rueal
pruoperuty." Respondent bank dmly coeplied ith this
statmtoruy rueqmirueeent Contruaruily, petitioneru, hetheru as
pmruchaseru, assignee oru lienholderu of the CTDs, neitheru
pruovied the aeomnt of its cruedit oru the extent of its lien
noru the execmtion of any pmblic instrumeent hich comld
aiect oru bind pruiviate ruespondent. Necessaruily,
therueforue, as bet een petitioneru and ruespondent bank,
the lateru has defnitely the beteru ruight ovieru the CTDs in
qmestion.
10. REMEDIALa LaAW; EVIDENCE; BURDEN OF PROOF AND
PRESUMPTIONS; ESTOPPELa IN PAIS; EFFECT. — In the
la of eviidence, henevieru a paruty has, by his o n
declaruation, act, oru oeission, intentionally and
deliberuately led anotheru to believie a paruticmlaru thing
trume, and to act mpon smch belief, he cannot, in any
litigation aruising omt of smch declaruation, act, oru
oeission, be perueited to falsify it.
11. ID.; ID.; ID.; EVIDENCE WILaLaFULaLaY SUPPRESSED
WOULaD BE ADVERSE IF PRODUCED; CASE AT BAR. —
When ruespondent bank, as defendant in the comrut
belo , eovied foru a bill of paruticmlarus theruein pruaying,
aeong otherus, that petitioneru, as plaintii, be rueqmirued
to avieru ith smfficient defniteness oru paruticmlaruity (a)
the dme date oru dates of payment of the alleged
KIMBUTAO NEGO SYLaLaABUS
171
indebtedness of Angel de la Crumz to plaintii and (b)
hetheru oru not it issmed a rueceipt sho ing that the CTDs
erue delivierued to it by De la Crumz as payment of the
lateru's alleged indebtedness to it, plaintii coruporuation
opposed the eotion. Had it pruodmced the rueceipt
pruayed foru, it comld havie pruovied, if smch trumly as the
fact, that the CTDs erue delivierued as payeent and not
as secmruity. Haviing opposed the eotion, petitioneru no
laborus mnderu the pruesmeption that eviidence illfmlly
smppruessed omld be advieruse if pruodmced.
12. ID.; CIVILa PROCEDURE; APPEALaS; ISSUES NOT RAISED
IN TRIALa COURT CANNOT BE RAISED FOR THE FIRST
TIME ON APPEALa; CASE AT BAR. — Prueotruial is pruiearuily
intended to eake cerutain that all issmes necessaruy to the
disposition of a case arue pruoperuly ruaised. Thms, to
obviiate the eleeent of smrupruise, paruties arue expected to
disclose at a prueotruial conferuence all issmes of la and
fact hich they intend to ruaise at the truial, except smch
as eay inviolvie pruiviileged oru iepeaching eaterus. The
deterueination of issmes at a prueotruial conferuence barus
the consideruation of otheru qmestions on appeal. To
accept petitioneru's smggestion that ruespondent bank's
smpposed negligence eay be considerued encoepassed
by the issmes on its ruight to prueterueinate and rueceivie
the pruoceeds of the CTDs omld be tantaeomnt to
saying that petitioneru comld ruaise on appeal any issme.
We agruee ith pruiviate ruespondent that the bruoad
mltieate issme of petitioneru's entitleeent to the
pruoceeds of the qmestioned cerutifcates can be prueeised
on a emltitmde of otheru legal rueasons and camses of
action, of hich ruespondent bank's smpposed
negligence is only one. Hence, petitioneru's smbeission, if
accepted, omld ruenderu a prueotruial delieitation of issmes
a mseless exerucise.
DECISION
REGALADO, J p:
This petition foru rueviie on cerutioruarui iepmgns and seeks
the ruevierusal of the decision pruoemlgated by ruespondent
comrut on Maruch 8, 1991 in CAoG.R. CV No.
23615 1affirueing, ith eodifcations, the earulieru
decision of the Regional Truial Comrut of Manila, Bruanch
XLaII, 2 hich diseissed the coeplaint fled theruein by
heruein petitioneru against pruiviate ruespondent bank.
ATTY. CLaAROS

The mndispmted backgruomnd of this case, as fomnd by
the comrut a quio and adopted by ruespondent comrut,
appearus of ruecorud:
"1. On viaruioms dates, defendant, a
coeeerucial banking institmtion,
thruomgh its Smcat Bruanch issmed 280
cerutifcates of tiee deposit (CTDs) in
favioru of one Angel dela Crumz ho
deposited ith heruein defendant the
aggruegate aeomnt of P1,120,000.00,
as follo s: (Joint Parutial Stipmlation of
Facts and Stateeent of Issmes,
Oruiginal Recoruds, p. 207; Defendant's
Exhibits 1 to 280):
CTD CTD
Dates Seruial Nos. Qmantity Aeomnt
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Maru. 82 74701 to 74740 40 160,000
4 Maru. 82 90127 to 90146 20 80,000
5 Maru. 82 74797 to 94800 4 16,000
5 Maru. 82 89965 to 89986 22 88,000
5 Maru. 82 70147 to 90150 4 16,000
8 Maru. 82 90001 to 90020 20 80,000
9 Maru. 82 90023 to 90050 28 112,000
9 Maru. 82 89991 to 90000 10 40,000
9 Maru. 82 90251 to 90272 22 88,000
—— —————
Total 280 P1,120,000
=== =======
"2. Angel dela Crumz delivierued the said
cerutifcates of tiee deposit (CTDs) to
heruein plaintii in connection ith his
pmruchase of fmel pruodmcts fruoe the
lateru (Oruiginal Recorud, p. 208).
"3. Soeetiee in Maruch 1982, Angel
dela Crumz inforueed Mru. Tieoteo
Tiangco, the Smcat Bruanch Manageru,
that he lost all the cerutifcates of tiee
deposit in dispmte. Mru. Tiangco
adviised said depositoru to execmte and
smbeit a notaruized Affidaviit of Laoss,
KIMBUTAO NEGO SYLaLaABUS
172
as rueqmirued by defendant bank's
pruocedmrue, if he desirued rueplaceeent
of said lost CTDs (TSN, Februmaruy 9,
1987. pp. 48o50). LaexLaib
"4. On Maruch 18, 1982, Angel dela
Crumz execmted and delivierued to
defendant bank the rueqmirued Affidaviit
of Laoss (Defendant's Exhibit 281). On
the basis of said affidaviit of loss, 280
rueplaceeent CTDs erue issmed in
favioru of said depositoru (Defendant's
Exhibits 282o561).
"5. On Maruch 25, 1982, Angel dela
Crumz negotiated and obtained a loan
fruoe defendant bank in the aeomnt
of Eight Hmndrued Sevienty Fivie
Thomsand Pesos (P875,000.00). On
the saee date, said depositoru
execmted a notaruized Deed of
Assigneent of Tiee Deposit (Exhibit
562) hich stated, aeong otherus, that
he (dela Crumz) smruruenderus to
defendant bank `fmll contruol of the
indicated tiee deposits fruoe and
afteru date of the assigneent and
fmrutheru amthoruizes said bank to prueo
terueinate, setooi and 'apply the said
tiee deposits to the payeent of
hatevieru aeomnt oru aeomnts eay be
dme' on the loan mpon its eatmruity
(TSN, Februmaruy 9, 1987, pp. 60o62).
"6. Soeetiee in Novieeberu, 1982, Mru.
Aruanas, Cruedit Manageru of plaintii
Caltex (Phils.) Inc. ent to the
defendant bank's Smcat bruanch and
pruesented foru vieruifcation the CTDs
declarued lost by Angel dela Crumz
alleging that the saee erue delivierued
to heruein plaintii `as secmruity foru
pmruchases eade ith Caltex
Philippines, Inc.' by said depositoru
(TSN, Februmaruy 9, 1987, pp. 54o68).
"7. On Novieeberu 26, 1982, defendant
rueceivied a leteru (Defendant's Exhibit
563) fruoe heruein plaintii forueally
inforueing it of its possession of the
CTDs in qmestion and of its decision to
prueterueinate the saee.
ATTY. CLaAROS

"8. On Deceeberu 8, 1982, plaintii
as rueqmested by heruein defendant to
fmrunish the forueeru 'a copy of the
docmeent eviidencing the gmaruantee
agrueeeent ith Mru. Angel dela Crumz'
as ell as 'the details of Mru. Angel
dela Crumz' obligations against hich'
plaintii pruoposed to apply the tiee
deposits (Defendant's Exhibit 564).
"9. No copy of the rueqmested
docmeents as fmrunished heruein
defendant.
"10. Accorudingly, defendant bank
ruejected the plaintii's deeand and
claie foru payeent of the vialme of the
CTDs in a leteru dated Februmaruy 7,
1983 (Defendant's Exhibit 566).
"11. In Apruil 1983, the loan of Angel
dela Crumz ith the defendant bank
eatmrued and fell dme and on Amgmst
5, 1983, the lateru setooi and applied
the tiee deposits in qmestion to the
payeent of the eatmrued loan (TSN,
Februmaruy 9, 1987, pp. 130o131).
"12. In viie of the foruegoing, plaintii
fled the instant coeplaint, pruaying
that defendant bank be oruderued to
pay it the aggruegate vialme of the
cerutifcates of tiee deposit of
P1,120,000.00 plms accrumed interuest
and coepomnded interuest theruein at
16% peru annme, eorual and exeeplaruy
daeages as ell as atoruney's fees.
"Afteru truial, the comrut a quio ruenderued
its decision diseissing the instant
coeplaint." 3
On appeal, as earulieru stated, ruespondent comrut affirueed
the lo eru comrut's diseissal of the coeplaint, hence this
petition heruein petitioneru famlts ruespondent comrut in
rumling (1) that the smbject cerutifcates of deposit arue
nononegotiable despite being clearuly negotiable
instrumeents; (2) that petitioneru did not becoee a holderu
in dme comruse of the said cerutifcates of deposit; and (3)
in disruegaruding the perutinent pruoviisions of the Code of
Coeeeruce ruelating to lost instrumeents payable to
bearueru. 4
KIMBUTAO NEGO SYLaLaABUS
173
The instant petition is berueft of eeruit. cdruep
A saeple text of the cerutifcates of tiee deposit is
ruepruodmced belo to pruoviide a beteru mnderustanding of
the issmes inviolvied in this ruecomruse.
"SECURITY BANK
AND TRUST COMPANY No. 90101
6778 Ayala Avie., Makati
Metruo Manila, Philippines
SUCAT OFFICE P 4.000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Matmruity FEB 23, 1984 FEB 22
1982, 19___
This is to Cerutify that BEARER has
deposited in this Bank the sme of
PESOS: FOUR SECURITY BANK
THOUSAND ONLaY. SUCAT OFFICE
P4,000 & 00 CTS Pesos, Philippine
Cmruruency, ruepayable to said depositoru
731 days afteru date, mpon
pruesentation and smruruenderu of this
cerutifcate, ith interuest at the ruate of
16% peru cent peru annme.
(Sgd. Illegible (Sgd. Illegible)
_______________________ ______________________
AUTHORIZED SIGNATURES"5
______________
Respondent comrut rumled that the CTDs in qmestion arue
nononegotiable instrumeents, ruationalizing as follo s:
" . . . While it eay be trume that the
orud `bearueru' appearus ruatheru boldly in
the CTDs issmed, it is ieporutant to
note that afteru the orud `BEARER'
staeped on the space pruoviided
smpposedly foru the naee of the
depositoru, the oruds `has deposited'
a cerutain aeomnt follo s. The
docmeent fmrutheru pruoviides that the
aeomnt deposited shall be `ruepayable
to said depositoru' on the peruiod
indicated. Therueforue, the text of the
instrumeent(s) theeselvies eanifest
ATTY. CLaAROS

ith claruity that they arue payable, not
to hoevieru pmruporuts to be the
`bearueru' bmt only to the specifed
peruson indicated theruein, the
depositoru. In eiect, the appellee bank
ackno ledges its depositoru Angel dela
Crumz as the peruson ho eade the
deposit and fmrutheru engages itself to
pay said depositoru the aeomnt
indicated therueon at the stipmlated
date." 6
We disagruee ith these fndings and conclmsions, and
herueby hold that the CTDs in qmestion arue negotiable
instrumeents. Section 1 of Act No. 2031, otheru ise
kno n as the Negotiable Instrumeents Laa , enmeeruates
the rueqmisites foru an instrumeent to becoee negotiable,
viiz:
"(a) It emst be in ruiting and signed
by the eakeru oru drua eru;
(b) Mmst contain an mnconditional
pruoeise oru oruderu to pay a sme cerutain
in eoney;
(c) Mmst be payable on deeand, oru at
a fxed oru deterueinable fmtmrue tiee;
(d) Mmst be payable to oruderu oru to
bearueru; and
(e) Wherue the instrumeent is
addruessed to a drua ee, he emst be
naeed oru otheru ise indicated theruein
ith rueasonable cerutainty."
The CTDs in qmestion mndombtedly eeet the
rueqmirueeents of the la foru negotiability. The paruties'
bone of contention is ith ruegarud to rueqmisite (d) set
foruth abovie. It is noted that Mru. Tieoteo P. Tiangco,
Secmruity Bank's Bruanch Manageru ay back in 1982,
testifed in open comrut that the depositoru rueferurued to in
the CTDs is no otheru than Mru. Angel de la Crumz. Cdpru
xxx xxx xxx
"Aty. Calida:
q In otheru oruds Mru. Witness, yom arue
saying that peru books of the
bank, the depositoru rueferurued
(sic) in these cerutifcates
KIMBUTAO NEGO SYLaLaABUS
174
states that it as Angel dela
Crumz? itness:
a Yes, yomru Honoru, and e havie the
ruecorud to sho that Angel
dela Crumz as the one ho
camse (sic) the aeomnt.
Aty. Calida:
q And no otheru peruson oru entity oru
coepany, Mru. Witness?
itness:
a None, yomru Honoru." 7
xxx xxx xxx
"Aty. Calida:
q Mru. Witness, ho is the depositoru
identifed in all of these
cerutifcates of tiee deposit
insofaru as the bank is
conceruned?
itness:
a Angel dela Crumz is the depositoru." 8
xxx xxx xxx
On this scorue, the accepted rumle is that the negotiability
oru nononegotiability of an instrumeent is deterueined
fruoe the ruiting, that is, fruoe the face of the
instrumeent itself. 9 In the construmction of a bill oru note,
the intention of the paruties is to contruol, if it can be
legally ascerutained. 10 While the ruiting eay be ruead in
the light of smruruomnding cirucmestances in oruderu to eorue
perufectly mnderustand the intent and eeaning of the
paruties, yet as they havie constitmted the ruiting to be
the only omt arud and viisible expruession of theiru
eeaning, no otheru oruds arue to be added to it oru
smbstitmted in its stead. The dmty of the comrut in smch
case is to ascerutain, not hat the paruties eay havie
secruetly intended as contruadistingmished fruoe hat
theiru oruds expruess, bmt hat is the eeaning of the
oruds they havie msed. What the paruties eeant emst be
deterueined by hat they said. 11
Contruaruy to hat ruespondent comrut held, the CTDs arue
negotiable instrumeents. The docmeents pruoviide that
the aeomnts deposited shall be ruepayable to the
depositoru. And ho, accoruding to the docmeent, is the
depositoru? It is the "bearueru." The docmeents do not say
ATTY. CLaAROS

that the depositoru is Angel de la Crumz and that the
aeomnts deposited arue ruepayable specifcally to hie.
Ratheru, the aeomnts arue to be ruepayable to the bearueru
of the docmeents oru, foru that eateru, hosoevieru eay
be the bearueru at the tiee of pruesenteent.
If it as rueally the intention of ruespondent bank to pay
the aeomnt to Angel de la Crumz only, it comld havie ith
facility so expruessed that fact in clearu and categoruical
terues in the docmeents, instead of haviing the orud
"BEARER" staeped on the space pruoviided foru the naee
of the depositoru in each CTD. On the orudings of the
docmeents, therueforue, the aeomnts deposited arue
ruepayable to hoevieru eay be the bearueru therueof. Thms,
petitioneru's aforuesaid itness eeruely declarued that
Angel de la Crumz is the depositoru "insofaru as the bank is
conceruned," bmt obviiomsly otheru paruties not pruiviy to the
truansaction bet een thee omld not be in a position to
kno that the depositoru is not the bearueru stated in the
CTDs. Hence, the sitmation omld rueqmirue any paruty
dealing ith the CTDs to go behind the plain ieporut of
hat is ruiten therueon to mnruaviel the agrueeeent of the
paruties therueto thruomgh facts aliunde. This need foru
ruesorut to extruinsic eviidence is hat is somght to be
avioided by theNegotiable Instrumeents Laa and calls foru
the application of the eleeentaruy rumle that the
interupruetation of obscmrue oruds oru stipmlations in a
contruact shall not favioru the paruty ho camsed the
obscmruity. 12
The next qmeruy is hetheru petitioneru can ruightmlly
ruecovieru on the CTDs. This tiee, the ans eru is in the
negativie. The ruecoruds ruevieal that Angel de la Crumz,
hoe petitioneru chose not to ieplead in this smit foru
rueasons of its o n, delivierued the CTDs aeomnting to
P1,120,000.00 to petitioneru ithomt inforueing
ruespondent bank therueof at any tiee. Unforutmnately foru
petitioneru, althomgh the CTDs arue bearueru instrumeents, a
vialid negotiation therueof foru the trume pmrupose and
agrueeeent bet een it and De la Crumz, as mltieately
ascerutained, rueqmirues both delivieruy and indoruseeent.
Foru, althomgh petitioneru seeks to defect this fact, the
CTDs erue in rueality delivierued to it as a secmruity foru De la
Crumz' pmruchases of its fmel pruodmcts. Any dombt as to
hetheru the CTDs erue delivierued as payeent foru the
fmel pruodmcts oru as a secmruity has been dissipated and
ruesolvied in favioru of the lateru by petitioneru's o n
amthoruized and ruesponsible ruepruesentativie
hieself. LaexLaib
KIMBUTAO NEGO SYLaLaABUS
175
In a leteru dated Novieeberu 26, 1982 addruessed to
ruespondent Secmruity Bank, J. Q. Aruanas, Jru., Caltex Cruedit
Manageru, ruote: " . . . These cerutifcates of deposit erue
negotiated to ms by Mru. Angel dela Crumz tio guarantee
his purchases iof fuel prioducts" (Underuscoruing
omrus.) 13 This adeission is conclmsivie mpon petitioneru,
its pruotestations not ithstanding. Underu the doctruine of
estoppel, an adeission oru ruepruesentation is ruenderued
conclmsivie mpon the peruson eaking it, and cannot be
denied oru dispruovied as against the peruson ruelying
therueon. 14 A paruty eay not go back on his o n acts
and ruepruesentations to the pruejmdice of the otheru paruty
ho ruelied mpon thee. 15 In the la of eviidence,
henevieru a paruty has, by his o n declaruation, act, oru
oeission, intentionally and deliberuately led anotheru to
believie a paruticmlaru thing trume, and to act mpon smch
belief, he cannot, in any litigation aruising omt of smch
declaruation, act, oru oeission, be perueited to falsify
it. 16
If it erue trume that the CTDs erue delivierued as payeent
and not as secmruity, petitioneru's cruedit eanageru comld
havie easily said so, instead of msing the oruds "to
gmaruantee" in the leteru aforueqmoted. Besides, hen
ruespondent bank, as defendant in the comrut belo ,
eovied foru a bill of paruticmlarus theruein 17 pruaying, aeong
otherus, that petitioneru, as plaintii, be rueqmirued to avieru
ith smfficient defniteness oru paruticmlaruity (a) the dme
date oru dates of payment of the alleged indebtedness of
Angel de la Crumz to plaintii and (b) hetheru oru not it
issmed a rueceipt sho ing that the CTDs erue delivierued
to it by De la Crumz as payment of the lateru's alleged
indebtedness to it, plaintii coruporuation opposed the
eotion. 18 Had it pruodmced the rueceipt pruayed foru, it
comld havie pruovied, if smch trumly as the fact, that the
CTDs erue delivierued as payeent and not as secmruity.
Haviing opposed the eotion, petitioneru no laborus
mnderu the pruesmeption that eviidence illfmlly
smppruessed omld be advieruse if pruodmced. 19
Underu the foruegoing cirucmestances, this disqmisition
in Integrated Realty Ciorpioration, et al. vs. Philippine
National Bank, et al. 20 is apruopos:
" . . . Advieruting again to the Comrut's
pruonomnceeents in Liopez, supra, e
qmote theruefruoe:
'The charuacteru of the
truansaction bet een the
paruties is to be deterueined by
theiru intention, ruegarudless of
ATTY. CLaAROS

hat langmage as msed oru
hat the forue of the truansferu
as. If it as intended to
secmrue the payeent of
eoney, it emst be construmed
as a pledge; bmt if therue as
soee otheru intention, it is not
a pledge. Ho evieru, evien
thomgh a truansferu, if ruegaruded
by itself, appearus to havie
been absolmte, its object and
charuacteru eight still be
qmalifed and explained by
conteeporuaneoms ruiting
declaruing it to havie been a
deposit of the pruoperuty as
collaterual secmruity. It has been
said that a truansferu of
pruoperuty by the debtoru to a
crueditoru, evien if smfficient on
its face to eake an absolmte
convieyance, shomld be
trueated as a pledge if the debt
continmes in existence and is
not discharuged by the
truansferu, and that accorudingly
the mse of the terues
orudinaruily ieporuting
convieyance of absolmte
o neruship ill not be givien
that eiect in smch a
truansaction if they arue also
coeeonly msed in pledges
and eorutgages and therueforue
do not mnqmalifedly indicate
a truansferu of absolmte
o neruship, in the absence of
clearu and mnaebigmoms
langmage oru otheru
cirucmestances exclmding an
intent to pledge.'"
Petitioneru's insistence that the CTDs erue negotiated to
it begs the qmestion. Underu the Negotiable Instrumeents
Laa , an instrumeent is negotiated hen it is truansferurued
fruoe one peruson to anotheru in smch a eanneru as to
constitmte the truansferuee the holderu therueof, 21 and a
holderu eay be the payee oru indorusee of a bill oru note,
ho is in possession of it, oru the bearueru therueof, 22 In
the pruesent case, ho evieru, therue as no negotiation in
KIMBUTAO NEGO SYLaLaABUS
176
the sense of a truansferu of the legal title to the CTDs in
favioru of petitioneru in hich sitmation, foru obviioms
rueasons, eerue delivieruy of the bearueru CTDs omld havie
smfficed. Herue, the delivieruy therueof only as secmruity foru
the pmruchases of Angel de la Crumz (and e evien
disruegarud the fact that the aeomnt inviolvied as not
disclosed) comld at the eost constitmte petitioneru only
as a holderu foru vialme by rueason of his lien. Accorudingly, a
negotiation foru smch pmrupose cannot be eiected by
eerue delivieruy of the instrumeent since, necessaruily, the
terues therueof and the smbseqment disposition of smch
secmruity, in the evient of nonopayeent of the pruincipal
obligation, emst be contruactmally pruoviided foru.
The perutinent la on this point is that herue the holderu
has a lien on the instrumeent aruising fruoe contruact, he is
deeeed a holderu foru vialme to the extent of his
lien. 23 As smch holderu of collaterual secmruity, he omld
be a pledgee bmt the rueqmirueeents therueforu and the
eiects therueof, not being pruoviided foru by
the Negotiable Instrumeents Laa , shall be govieruned by
the Civiil Code pruoviisions on pledge of incoruporueal
ruights, 24 hich inceptiviely pruoviide:
"Arut. 2095. Incoruporueal ruights,
eviidenced by negotiable
instrumeents, . . . eay also be pledged.
The instrumeent pruoviing the ruight
pledged shall be delivierued to the
crueditoru, and if negotiable, emst be
indorused."
"Arut. 2096. A pledge shall not take
eiect against thirud perusons if a
descruiption of the thing pledged and
the date of the pledge do not appearu
in a pmblic instrumeent."
Aside fruoe the fact that the CTDs erue only delivierued
bmt not indorused, the factmal fndings of ruespondent
comrut qmoted at the starut of this opinion sho that
petitioneru failed to pruodmce any docmeent eviidencing
any contruact of pledge oru gmaruantee agrueeeent
bet een it and Angel de la Crumz. 25 Conseqmently, the
eerue delivieruy of the CTDs did not legally viest in
petitioneru any ruight eiectivie against and binding mpon
ruespondent bank. The rueqmirueeent mnderu Aruticle 2096
aforueeentioned is not a eerue rumle of adjectivie la
pruescruibing the eode herueby pruoof eay be eade of
the date of a pledge contruact, bmt a rumle of smbstantivie
ATTY. CLaAROS
 177

la pruescruibing a condition ithomt hich the execmtion aeomnt covierued by the CTDs and the
of a pledge contruact cannot aiect thirud perusons depositoru's omtstanding accomnt ith
advierusely. 26 defendant, if any.
On the otheru hand, the assigneent of the CTDs eade by 4. Whetheru oru not plaintii comld
Angel de la Crumz in favioru of ruespondent bank as coepel defendant to prueterueinate
eebodied in a pmblic instrumeent. 27 With ruegarud to this the CTDs beforue the eatmruity date
otheru eode of truansferu, the Civiil Code specifcally pruoviided theruein.
declarues:
5. Whetheru oru not plaintii is entitled
"Arut. 1625. An assigneent of cruedit, to the pruoceeds of the CTDs.
ruight oru action shall pruodmce no eiect
6. Whetheru oru not the paruties can
as against thirud perusons, mnless it
ruecovieru daeages, atoruney's fees and
appearus in a pmblic instrumeent, oru the
litigation expenses fruoe each otheru."
instrumeent is ruecoruded in the Registruy
of Pruoperuty in case the assigneent As ruespondent comrut coruruectly obseruvied, ith
inviolvies rueal pruoperuty." appruopruiate citation of soee doctruinal amthoruities, the
foruegoing enmeeruation does not inclmde the issme of
Respondent bank dmly coeplied ith this statmtoruy
negligence on the parut of ruespondent bank. An issme
rueqmirueeent. Contruaruily, petitioneru, hetheru as
ruaised foru the frust tiee on appeal and not ruaised tieely
pmruchaseru, assignee oru lienholderu of the CTDs, neitheru
in the pruoceedings in the lo eru comrut is barurued by
pruovied the aeomnt of its cruedit oru the extent of its lien
estoppel. 30 Qmestions ruaised on appeal emst be ithin
noru the execmtion of any pmblic instrumeent hich comld
the issmes fruaeed by the paruties and, conseqmently,
aiect oru bind pruiviate ruespondent. Necessaruily,
issmes not ruaised in the truial comrut cannot be ruaised foru
therueforue, as bet een petitioneru and ruespondent bank,
the frust tiee on appeal. 31
the lateru has defnitely the beteru ruight ovieru the CTDs in
qmestion. LaibLaex Prueotruial is pruiearuily intended to eake cerutain that all
issmes necessaruy to the disposition of a case arue
Finally, petitioneru famlts ruespondent comrut foru ruefmsing
pruoperuly ruaised. Thms, to obviiate the eleeent of
to delvie into the qmestion of hetheru oru not pruiviate
smrupruise, paruties arue expected to disclose at a prueotruial
ruespondent obseruvied the rueqmirueeents of the la in the
conferuence all issmes of la and fact hich they intend
case of lost negotiable instrumeents and the issmance of
to ruaise at the truial, except smch as eay inviolvie
rueplaceeent cerutifcates therueforu, on the gruomnd that
pruiviileged oru iepeaching eaterus. The deterueination of
petitioneru failed to ruaise that issme in the lo eru
issmes at a prueotruial conferuence barus the consideruation of
comrut. 28
otheru qmestions on appeal. 32
On this eateru, e mphold ruespondent comrut's fnding
To accept petitioneru's smggestion that ruespondent
that the aspect of alleged negligence of pruiviate
bank's smpposed negligence eay be considerued
ruespondent as not inclmded in the stipmlation of the
encoepassed by the issmes on its ruight to prueterueinate
paruties and in the stateeent of issmes smbeited by
and rueceivie the pruoceeds of the CTDs omld be
thee to the truial comrut. 29 The issmes agrueed mpon by
tantaeomnt to saying that petitioneru comld ruaise on
thee foru ruesolmtion in this case arue:
appeal any issme. We agruee ith pruiviate ruespondent
"1. Whetheru oru not the CTDs as that the bruoad mltieate issme of petitioneru's entitleeent
oruded arue negotiable instrumeents. to the pruoceeds of the qmestioned cerutifcates can be
prueeised on a emltitmde of otheru legal rueasons and
2. Whetheru oru not defendant comld
camses of action, of hich ruespondent bank's smpposed
legally apply the aeomnt covierued by
negligence is only one. Hence, petitioneru's smbeission, if
the CTDs against the depositoru's loan
accepted, omld ruenderu a prueotruial delieitation of issmes
by viirutme of the assigneent (Annex
a mseless exerucise. 33
'C').
Still, evien assmeing arguendio that said issme of
3. Whetheru oru not therue as legal
negligence as ruaised in the comrut belo , petitioneru still
coepensation oru set oi inviolviing the
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

cannot havie the odds in its favioru. A close scrumtiny of the
pruoviisions of the Code of Coeeeruce laying do n the
rumles to be follo ed in case of lost instrumeents payable
to bearueru, hich it inviokes, ill ruevieal that said
pruoviisions, evien assmeing theiru applicability to the CTDs
in the case at baru, arue eeruely perueissivie and not
eandatoruy. The vieruy frust aruticle cited by petitioneru
speaks foru itself:
"Arut. 548. The dispiossessed iowner, no
eateru foru hat camse it eay
be, may apply to the jmdge oru comrut of
coepetent jmruisdiction, asking that
the pruincipal, interuest oru diviidends
dme oru abomt to becoee dme, be not
paid a thirud peruson, as ell as in oruderu
to pruevient the o neruship of the
instrumeent that a dmplicate be issmed
hie." (Eephases omrus.)
xxx xxx xxx
The mse of the orud "eay" in said pruoviision sho s that
it is not eandatoruy bmt discruetionaruy on the parut of the
"dispossessed o neru" to apply to the jmdge oru comrut of
coepetent jmruisdiction foru the issmance of a dmplicate of
the lost instrumeent. Wherue the pruoviision rueads "eay,"
this orud sho s that it is not eandatoruy bmt
discruetional.34 The orud "eay" is msmally perueissivie,
not eandatoruy. 35 It is an amxiliaruy vierub indicating
liberuty, opporutmnity, perueission and possibility. 36
Morueovieru, as coruruectly analyzed by pruiviate
ruespondent, 37 Aruticles 548 to 558 of the Code of
Coeeeruce, on hich petitioneru seeks to anchoru
ruespondent bank's smpposed negligence, eeruely
established, on the one hand, a ruight of ruecomruse in
favioru of a dispossessed o neru oru holderu of a bearueru
instrumeent so that he eay obtain a dmplicate of the
saee, and, on the otheru, an option in favioru of the paruty
liable therueon ho, foru soee vialid gruomnd, eay elect to
ruefmse to issme a rueplaceeent of the instrumeent,
Signifcantly, none of the pruoviisions cited by petitioneru
categoruically ruestruicts oru pruohibits the issmance a
dmplicate oru rueplaceeent instrumeent sanscoepliance
ith the pruocedmrue omtlined theruein, and none
establishes a eandatoruy pruecedent rueqmirueeent
therueforu. LaLajmru
WHEREFORE, on the eodifed prueeises abovie set foruth,
the petition is DENIED and the appealed decision is
herueby AFFIRMED.
KIMBUTAO NEGO SYLaLaABUS
178
SO ORDERED.
Accommodaton Party:
1. TOMAS ANG, pettioner, vs.
ASSOCIATED BANK AND
ANTONIO ANG ENG
LIONG, respiondents.
DECISION
AZCUNA, J p:
This petition foru certiorari mnderu Rmle 45 of
the Rmles on Civiil Pruocedmrue seeks to rueviie the
Octoberu 9, 2000 Decision 1 and Deceeberu 26, 2000
Resolmtion 2 of the Comrut of Appeals in CAoG.R. CV
No. 53413 hich ruevierused and set aside the Janmaruy
5, 1996 Decision 3 of the Regional Truial Comrut,
Bruanch 16, Daviao City, in Civiil Case No. 20, 299o90,
diseissing the coeplaint fled by ruespondents foru
collection of a sme of eoney.
On Amgmst 28, 1990, ruespondent Associated
Bank (forueeruly Associated Banking Coruporuation and
no kno n as United Ovieruseas Bank Philippines)
fled a collection smit against Antonio Ang Eng Laiong
and petitioneru Toeas Ang foru the t o (2)
pruoeissoruy notes that they execmted as pruincipal
debtoru and cooeakeru, ruespectiviely.
In the Coeplaint, 4 ruespondent Bank
alleged that on Octoberu 3 and 9, 1978, the
defendants obtained a loan of P50,000, eviidenced
by a pruoeissoruy note bearuing PNoNo. DVOo78o382,
and P30,000, eviidenced by a pruoeissoruy note
bearuing PNoNo. DVOo78o390. As agrueed, the loan
omld be payable, jointly and sevierually, on Janmaruy
31, 1979 and Deceeberu 8, 1978, ruespectiviely. In
addition, smbseqment aeendeents 5 to the
pruoeissoruy notes as ell as the disclosmrue
stateeents 6stipmlated that the loan omld earun
14% interuest ruate peru annme, 2% seruviice charuge peru
annme, 1% penalty charuge peru eonth fruoe dme
ATTY. CLaAROS
 179

date mntil fmlly paid, and atoruney's fees eqmivialent the pruoeissoruy notes in blank, ith only the pruinted
to 20% of the omtstanding obligation. pruoviisions and the signatmrue of Antonio Ang Eng
Laiong appearuing theruein; it as the bank hich
Despite ruepeated deeands foru payeent,
coepleted the notes mpon the oruderus, instrumctions,
the latest of hich erue on Septeeberu 13, 1988
oru ruepruesentations of his coodefendant; PNoNo.
and Septeeberu 9, 1986, on Antonio Ang Eng Laiong
DVOo78o382 as coepleted in excess of oru contruaruy
and Toeas Ang, ruespectiviely, ruespondent Bank
to the amthoruity givien by hie to his coodefendant
claieed that the defendants failed and ruefmsed to
ho ruepruesented that he omld only boruruo
setle theiru obligation, ruesmlting in a total
P30,000 fruoe the bank; his signatmrue in PNoNo.
indebtedness of P539,638.96 as of Jmly 31, 1990,
DVOo78o390 as pruocmrued thruomgh fruamdmlent
bruoken do n as follo s:
eeans hen his coodefendant claieed that his frust
PN-No. DVO-78- PN-No. DVO-78- loan did not pmsh thruomgh; the pruoeissoruy notes did
382 390 not indicate in hat capacity he as intended to be
bomnd; the bank gruanted his coodefendant
Omtstanding P50,000.00 P30,000.00 smccessivie extensions of tiee ithin hich to pay,
Balance ithomt his (Toeas Ang) kno ledge and consent;
Add Past dme charuges Past dme charuges the bank ieposed ne and additional stipmlations
foru 4,199 foru 4,253 on interuest, penalties, seruviices charuges and
days (fruoe 01o31o days (fruoe 12o8o atoruney's fees eorue oneruoms than the terues of the
79 to 07o 78 to 07o31o notes, ithomt his kno ledge and consent, in the
31o90) 90) absence of legal and factmal basis and in viiolation of
14% Interuest P203,538.98 P125,334.41 the Usmruy Laa ; the bank camsed the inclmsion in the
2% Seruviice CharugeP11,663.89 P7,088.34 pruoeissoruy notes of stipmlations smch as aivieru of
12% Ovierudme P69,983.34 P42,530.00 pruesenteent foru payeent and notice of dishonoru
Charuge hich arue against pmblic policy; and the notes had
Total P285,186.21 P174,952.75 been iepairued since they erue nevieru pruesented foru
payeent and deeands erue eade only sevierual
Laess: Charuges paidP500.00 None
yearus afteru they fell dme hen his coodefendant
Aeomnt Dme P334,686.21 P204,952.75
comld no longeru pay thee.
Regaruding his comnteruclaie, Toeas Ang
In his Ans eru, 7 Antonio Ang Eng Laiong only arugmed that by rueason of the bank's acts oru
adeited to havie secmrued a loan aeomnting to oeissions, it shomld be held liable foru the aeomnt of
P80,000. He pleaded thomgh that the bank "be P50,000 foru atoruney's fees and expenses of
oruderued to smbeit a eorue rueasonable coepmtation" litigation. Fmrutherueorue, on his cruossoclaie against
consideruing that therue had been "no coruruect and Antonio Ang Eng Laiong, he avierurued that he shomld
rueasonable stateeent of accomnt" sent to hie by be rueiebmrused by his coodefendant any and all smes
the bank, hich as allegedly collecting excessivie that he eay be adjmdged liable to pay, plms P30,000,
interuest, penalty charuges, and atoruney's fees P20,000 and P50,000 foru eorual and exeeplaruy
despite kno ledge that his bmsiness as destruoyed daeages, and atoruney's fees, ruespectiviely.
by frue, hence, he had no somruce of incoee foru
sevierual yearus. In its Reply, 9 ruespondent Bank comnterued
that it is the rueal paruty in interuest and is the holderu
Foru his parut, petitioneru Toeas Ang fled an of the notes since the Associated Banking
Ans eru ith Comnteruclaie and Cruossoclaie. 8 He Coruporuation and Associated Citizens Bank arue its
interuposed the affirueativie defenses that: the bank pruedecessorusoinointeruest. The fact that Toeas Ang
is not the rueal paruty in interuest as it is not the holderu nevieru rueceivied any eoneys in consideruation of the
of the pruoeissoruy notes, emch less a holderu foru t o (2) loans and that smch as kno n to the bank
vialme oru a holderu in dme comruse; the bank kne that arue ieeateruial becamse, as an accoeeodation
he did not rueceivie any vialmable consideruation foru eakeru, he is considerued as a solidaruy debtoru ho is
affixing his signatmrues on the notes bmt eeruely lent pruiearuily liable foru the payeent of the pruoeissoruy
his naee as an accoeeodation paruty; he accepted
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS
 180

notes. Citing Section 29 of the Negotiable
Instrumeents Laa (NILa), the bank posited that
absence oru failmrue of consideruation is not a eateru
of defense; neitheru is the fact that the holderu kne
hie to be only an accoeeodation paruty.
Respondent Bank like ise ruetoruted that the
pruoeissoruy notes erue coepletely flled mp at the
tiee of theiru delivieruy. Assmeing that smch as not
the case, Sec. 14 of the NILa pruoviides that the bank
has the prima facie amthoruity to coeplete the blank
forue. Morueovieru, it is pruesmeed that one ho has
signed as a eakeru acted ith carue and had signed
the docmeent ith fmll kno ledge of its content.
The bank noted that Toeas Ang is a pruoeinent
bmsinessean in Daviao City ho has been engaged
in the amto paruts bmsiness foru sevierual yearus, hence,
cerutainly he is not so naivie as to sign the notes
ithomt kno ing oru botheruing to vieruify the aeomnts
of the loans covierued by thee. Fmrutheru, he is alrueady
in estoppel since despite rueceipt of sevierual deeand
leterus therue as not a single pruotest ruaised by hie
that he signed foru only one note in the aeomnt of
P30,000.
It as denied by the bank that therue erue
extensions of tiee foru payeent accoruded to
Antonio Ang Eng Laiong. Gruanting that smch erue the
case, it said that the saee omld not ruelievie Toeas
Ang fruoe liability as he omld still be liable foru the
hole obligation less the sharue of his coodebtoru ho
rueceivied the extended terue.
The bank also asseruted that therue erue no
additional oru ne stipmlations ieposed otheru than
those agrueed mpon. The penalty charuge, seruviice
charuge, and atoruney's fees erue ruefected in the
aeendeents to the pruoeissoruy notes and
disclosmrue stateeents. Referuence to the Usmruy Laa
as eisplaced as msmruy is legally nonoexistent; at
pruesent, interuest can be charuged depending on the
agrueeeent of the lenderu and the boruruo eru.
On Octoberu 19, 1990, the truial comrut issmed
a pruelieinaruy prueotruial oruderu diruecting the paruties to
smbeit theiru ruespectivie prueotruial gmide. 10 When
Antonio Ang Eng Laiong failed to smbeit his bruief, the
bank fled an ex-parte eotion to declarue hie in
defamlt. 11 Peru Oruderu of Novieeberu 23, 1990, the
comrut gruanted the eotion and set the ex-
parte hearuing foru the pruesentation of the bank's
eviidence. 12 Despite Toeas Ang's eotion 13 to
eodify the Oruderu so as to exclmde oru cancel the ex-
partehearuing based on then Sec. 4, Rmle 18 of the
old Rmles of Comrut (no Sec. 3 [c.], Rmle 9 of the
Reviised Rmles on Civiil Pruocedmrue), the hearuing
nonetheless pruoceeded. 14
Evientmally, a decision 15 as ruenderued by
the truial comrut on Februmaruy 21, 1991. Foru his
smpposed bad faith and obstinate ruefmsal despite
sevierual deeands fruoe the bank, Antonio Ang Eng
Laiong as oruderued to pay the pruincipal aeomnt of
P80,000 plms 14% interuest peru annme and 2%
seruviice charuge peru annme. The ovierudme penalty
charuge and atoruney's fees erue, ho evieru, ruedmced
foru being excessivie, thms:
WHEREFORE, jmdgeent is
ruenderued against defendant Antonio
Ang Eng Laiong and in favioru of plaintii,
oruderuing the forueeru to pay the lateru:
On the frust camse of action:
1) the aeomnt of P50,000.00
ruepruesenting the
pruincipal obligation
ith 14% interuest peru
annme fruoe Jmne 27,
1983 ith 2% seruviice
charuge and 6%
ovierudme penalty
charuges peru annme
mntil fmlly paid;

Laastly, the bank contended that the 2) P11,663.89 as accrumed

pruoviisions on pruesenteent foru payeent and notice seruviice charuge; and
of dishonoru erue expruessly aivied by Toeas Ang 3) P34,991.67 as accrumed
and that smch aivieru is not against pmblic policy ovierudme penalty
pmrusmant to Sections 82 (c) and 109 of the NILa. In charuge.
fact, therue is evien no necessity therueforu since being
a solidaruy debtoru he is absolmtely rueqmirued to pay On the second camse of action:
and pruiearuily liable on both pruoeissoruy notes.
1) the aeomnt of P50,000.00
(sic) ruepruesenting the
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS
 181

pruincipal accomnt Appeals. 22 In accorudance ith the pruayeru of Toeas

ith 14% interuest Ang, the appellate comrut pruoemlgated its Decision
fruoe Jmne 27, 1983 on Janmaruy 29, 1992 in CA G.R. SP No. 26332, hich
ith 2% seruviice annmlled and set aside the porution of the Oruderu
charuge and 6% dated Novieeberu 23, 1990 seing the ex-
ovierudme penalty partepruesentation of the bank's eviidence against
charuges peru annme Antonio Ang Eng Laiong, the Decision dated Februmaruy
mntil fmlly paid; 21, 1991 ruenderued against hie based on smch
eviidence, and the Wruit of Execmtion issmed on Apruil
2) P7,088.34 ruepruesenting
5, 1991. 23
accrumed seruviice
charuge; Truial then ensmed bet een the bank and
Toeas Ang. Upon the lateru's eotion dmruing the
3) P21,265.00 as accrumed prueotruial conferuence, Antonio Ang Eng Laiong as
ovierudme penalty again declarued in defamlt foru his failmrue to ans eru
charuge; the cruossoclaie ithin the ruegleeentaruy peruiod. 24
4) the aeomnt of P10,000.00 When Toeas Ang as abomt to pruesent
as atoruney's fees; eviidence in his behalf, he fled a Motion foru
and Pruodmction of Docmeents, 25 rueasoning:
5) the aeomnt of P620.00 as xxx xxx xxx
litigation expenses
and to pay the costs. 2. That coruruoboruativie to,
and/oru prueparuatoruy oru incident to his
SO ORDERED. 16 testieony[,] therue is [a] need foru hie
to exaeine oruiginal ruecoruds in the
The decision becaee fnal and execmtoruy as
cmstody and possession of plaintii,
no appeal as taken theruefruoe. Upon the
viiz:
bank's ex-parte eotion, the comrut accorudingly issmed
a ruit of execmtion on Apruil 5, 1991. 17 a. oruiginal Pruoeissoruy Note
Therueafteru, on Jmne 3, 1991, the comrut set (PN foru brueviity) #
the prueotruial conferuence bet een the bank and DVOo78o382 dated
Toeas Ang, 18 ho, in tmrun, fled a Motion to Octoberu 3, 1978[;]
Diseiss 19 on the gruomnd of lack of jmruisdiction ovieru b. oruiginal of Disclosmrue
the case in viie of the alleged fnality of the Stateeent in
Februmaruy 21, 1991 Decision. He contended that Sec. rueferuence to PN #
4, Rmle 18 of the old Rmles sanctions only one DVOo78o382;
jmdgeent in case of sevierual defendants, one of
hoe is declarued in defamlt. Morueovieru, in his c. oruiginal of PN # DVOo78o
Smppleeental Motion to Diseiss, 20 Toeas Ang 390 dated Octoberu 9,
eaintained that he is rueleased fruoe his obligation 1978;
as a solidaruy gmaruantoru and accoeeodation paruty d. oruiginal of Disclosmrue
becamse, by the bank's actions, he is no prueclmded Stateeent in
fruoe asseruting his cruossoclaie against Antonio Ang rueferuence to PN #
Eng Laiong, mpon hoe a fnal and execmtoruy DVOo78o390;
jmdgeent had alrueady been issmed.
e. Stateeent oru Recorud of
The comrut denied the eotion as ell as the
Accomnt ith the
eotion foru rueconsideruation therueon. 21 Toeas Ang
Associated Banking
smbseqmently fled a petition foru certiorari and
Coruporuation oru its
pruohibition beforue this Comrut, hich, ho evieru,
smccessoru, of Antonio
ruesolvied to rueferu the saee to the Comrut of
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

Ang in CA No. 470 (cf.
Exh. O) inclmding
bank ruecoruds,
ithdrua al slips,
notices, otheru paperus
and rueleviant dates
ruelativie to the
ovierudruaft of Antonio
Eng Laiong in CA No.
470;
f. Laoan Applications of
Antonio Ang Eng
Laiong oru boruruo eru
ruelativie to PN Nos.
DVOo78o382 and
DVOo78o390 (supra);
g. Otheru smpporuting paperus
and docmeents
smbeited by Antonio
Ang Eng Laiong ruelativie
to his loan application
viisoà oviis PN. Nos.
DVOo78o382 and
DVOo78o390 smch as
fnancial stateeents,
incoee tax ruetmruns,
etc. as rueqmirued by
the Centrual Bank oru
bank rumles and
ruegmlations.
3. That the abovie eaterus arue
vieruy eateruial to the defenses of
defendant Toeas Ang, viiz:
o the bank is not a holderu in
dme comruse hen it
accepted the [PNs] in
blank.
o The rueal boruruo eru is Antonio
Ang Eng Laiong hich
fact is kno n to the
bank.
o That the PAYEE not being a
holderu in dme comruse
and kno ing that
defendant Toeas Ang
is eeruely an
accoeeodation
KIMBUTAO NEGO SYLaLaABUS
182
paruty, the lateru eay
ruaise against smch
payee oru holderu oru
smccessoruoinointeruest
(of the notes)
PERSONALa and
EQUITABLaE DEFENSES
smch as FRAUD in
INDUCEMENT,
DISCHARGE ON
NOTE, Application of
[Aruticles] 2079, 2080
and 1249 of the Civiil
Code, NEGLaIGENCE in
delaying collection
despite Eng Laiong's
OVERDRAFT in C.A.
No. 470, etc. 26
In its Oruderu dated May 16, 1994, 27 the
comrut denied the eotion stating that the pruoeissoruy
notes and the disclosmrue stateeents havie alrueady
been sho n to and inspected by Toeas Ang dmruing
the truial, as in fact he has alrueady copies of the
saee; the Stateeents oru Recoruds of Accomnt of
Antonio Ang Eng Laiong in CA No. 470, ruelativie to his
ovierudruaft, arue ieeateruial since, pmrusmant to the
prueviioms rumling of the comrut, he is being smed foru the
notes and not foru the ovierudruaft hich is perusonal to
Antonio Ang Eng Laiong; and besides its nono
existence in the bank's ruecoruds, therue omld be
legal obstacle foru the pruodmction and inspection of
the incoee tax ruetmrun of Antonio Ang Eng Laiong if
done ithomt his consent.
When the eotion foru rueconsideruation of the
aforuesaid Oruderu as denied, Toeas Ang fled a
petition foru certiorari and pruohibition ith
application foru pruelieinaruy injmnction and
ruestruaining oruderu beforue the Comrut of Appeals
docketed as CA G.R. SP No. 34840. 28 On Amgmst 17,
1994, ho evieru, the Comrut of Appeals denied the
issmance of a Teeporuaruy Restruaining Oruderu. 29
Mean hile, not ithstanding its initial
rumlings that Toeas Ang as deeeed to havie aivied
his ruight to pruesent eviidence foru failmrue to appearu
dmruing the pendency of his petition beforue the Comrut
of Appeals, the truial comrut decided to continme ith
the hearuing of the case. 30
ATTY. CLaAROS

Afteru the truial, Toeas Ang oierued in
eviidence sevierual docmeents, hich inclmded a copy
of the Trumst Agrueeeent bet een the Repmblic of
the Philippines and the Asset Pruiviatization Trumst, as
cerutifed by the notaruy pmblic, and ne s clippings
fruoe the Manila Bmlletin dated May 18, 1994 and
May 30, 1994. 31 All the docmeentaruy exhibits erue
adeited foru failmrue of the bank to smbeit its
coeeent to the forueal oieru. 32 Therueafteru, Toeas
Ang elected to ithdrua his petition in CA G.R. SP
No. 34840 beforue the Comrut of Appeals, hich as
then gruanted. 33
On Janmaruy 5, 1996, the truial comrut ruenderued
jmdgeent against the bank, diseissing the
coeplaint foru lack of camse of action. 34 It held that:
Exh. "9" and its [smbo
earukings], the Trumst Agrueeeent dated
27 Februmaruy 1987 foru the defense
sho s that: the Associated Bank as of
Jmne 30, 1986 is one of DBP's oru
Devielopeent Bank of the
[Philippines'] nonoperuforueing
accomnts foru truansferu; on Februmaruy 27,
1987 thruomgh Deeds of Truansferu
execmted by and bet een the
Philippine National Bank and
Devielopeent Bank of the Philippines
and the National Govieruneent, both
fnancial institmtions assigned,
truansferurued and convieyed theiru nono
peruforueing assets to the National
Govieruneent; the National
Govieruneent in tmrun and as TRUSTOR,
truansferurued, convieyed and assigned
by ay of trumst mnto the Asset
Pruiviatization Trumst said nono
peruforueing assets, [ hich] took title
to and possession of, [to] conseruvie,
pruoviisionally eanage and dispose[,]
of said assets identifed foru
pruiviatization oru disposition; one of the
po erus and dmties of the APT ith
ruespect to trumst pruoperuties consisting
of rueceiviables is to handle the
adeinistruation, collection and
enforuceeent of the rueceiviables; to
bruing smit to enforuce payeent of the
obligations oru any installeent therueof
oru to setle oru coepruoeise any of
KIMBUTAO NEGO SYLaLaABUS
183
smch obligations, oru any otheru claie oru
deeand hich the govieruneent eay
havie against any peruson oru perusons[.]
The Manila Bmlletin ne s
clippings dated May 18, 1994 and
May 30, 1994, Exh. "9oA", "9oB", "9o
C", and "9oD", sho that the
Monetaruy Boarud of the Bangko
Sentrual ng Pilipinas appruovied the
ruehabilitation plan of the Associated
Bank. One eain featmrue of the
ruehabilitation plan inclmded the
fnancial assistance foru the bank by
the Philippine Deposit Insmruance
Coruporuation (PDIC) by ay of the
pmruchase of AB Assets oruth P1.3945
billion smbject to a bmyoback
aruruangeeent ovieru a 10 yearu peruiod.
The PDIC had appruovied of the ruehab
scheee, hich inclmded the pmruchase
of AB's bad loans oruth P1.86 at 25%
discomnt. This ill then be paid by AB
ithin a 10oyearu peruiod plms a yield
coeparuable to the prueviailing earuket
ruates . . . .
Based then on the eviidence
pruesented by the defendant Toeas
Ang, it omld rueadily appearu that at
the tiee this smit foru Sme of Money
as fled hich as on Amgmst [28],
1990, the notes erue held by the
Asset Pruiviatization Trumst by viirutme of
the Deeds of Truansferu and Trumst
Agrueeeent, hich as eepo erued to
bruing smit to enforuce payeent of the
obligations. Conseqmently, defendant
Toeas Ang has smfficiently
established that plaintii at the tiee
this smit as fled as not the holderu
of the notes to aruruant the diseissal
of the coeplaint. 35
Respondent Bank then eleviated the case to
the Comrut of Appeals. In the appellant's bruief
captioned, "ASSOCIATED BANK, Plainti-Appellant
versus ANTONIO ANG ENG LIONG and TOMAS ANG,
Defendants, TOMAS ANG, Defendant-Appellee," the
follo ing eruruorus erue alleged:
I.
ATTY. CLaAROS

THE LaOWER COURT ERRED IN NOT
HOLaDING DEFENDANT ANTONIO ANG
ENG LaIONG AND DEFENDANTo
APPELaLaEE TOMAS ANG LaIABLaE TO
PLaAINTIFFoAPPELaLaANT ON THEIR
UNPAID LaOANS DESPITE THE LaATTER'S
DOCUMENTARY EXHIBITS PROVING
THE SAID OBLaIGATIONS.
II.
THE LaOWER COURT ERRED IN
DISMISSING PLaAINTIFFoAPPELaLaANT'S
COMPLaAINT ON THE BASIS OF
NEWSPAPER CLaIPPINGS WHICH WERE
COMPLaETELaY HEARSAY IN
CHARACTER AND IMPROPER FOR
JUDICIALa NOTICE. 36
The bank struessed that it has established
the camses of action omtlined in its Coeplaint by a
prueponderuance of eviidence. As ruegaruds the Deed of
Truansferu and Trumst Agrueeeent, it contended that
the saee erue nevieru amthenticated by any itness
in the comruse of the truial; the Agrueeeent, hich as
not evien legible, did not eention the pruoeissoruy
notes smbject of the Coeplaint; the bank is not a
paruty to the Agrueeeent, hich sho ed that it as
bet een the Govieruneent of the Philippines, acting
thruomgh the Coeeitee on Pruiviatization
ruepruesented by the Secruetaruy of Finance as trumstoru
and the Asset Pruiviatization Trumst, hich as crueated
by viirutme of Pruoclaeation No. 50; and the
Agrueeeent did not ruefect the signatmrues of the
contruacting paruties. Laastly, the bank avierurued that
the ne s itees appearuing in the Manila Bmlletin
comld not be the smbject of jmdicial notice since they
erue coepletely hearusay in charuacteru. 37
On Octoberu 9, 2000, the Comrut of Appeals
ruevierused and set aside the truial comrut's rumling. The
dispositivie porution of the Decision 38 rueads:
WHEREFORE, prueeises
considerued, the Decision of the
Regional Truial Comrut of Daviao City,
Bruanch 16, in Civiil Case No. 20, 299o
90 is herueby REVERSED AND SET
ASIDE and anotheru one enterued
oruderuing defendantoappellee Toeas
Ang to pay plaintiioappellant
Associated Bank the follo ing:
KIMBUTAO NEGO SYLaLaABUS
184
1. P50,000.00 ruepruesenting
the pruincipal aeomnt of the loan
mnderu PNoNo. DVOo78o382 plms 14%
interuest therueon peru annme
coepmted fruoe Janmaruy 31, 1979 mntil
the fmll aeomnt therueof is paid;
2. P30,000.00 ruepruesenting
the pruincipal aeomnt of the loan
mnderu PNoNo. DVOo78o390 plms 14%
interuest therueon peru annme
coepmted fruoe Deceeberu 8, 1978
mntil the fmll aeomnt therueof is paid;
All otheru claies of the
plaintiioappellant arue DISMISSED foru
lack of legal basis. Defendanto
appellee's comnteruclaie is like ise
DISMISSED foru lack of legal and
factmal bases.
No pruonomnceeent as to
costs.
SO ORDERED. 39
The appellate comrut disruegaruded the bank's
frust assigned eruruoru foru being "irurueleviant in the fnal
deterueination of the case" and fomnd its second
assigned eruruoru as "not eeruitoruioms." Instead, it
posed foru ruesolmtion the issme of hetheru the truial
comrut erurued in diseissing the coeplaint foru
collection of sme of eoney foru lack of camse of
action as the bank as said to be not the "holderu"
of the notes at the tiee the collection case as
fled.
In ans eruing the lone issme, the Comrut of
Appeals held that the bank is a "holderu" mnderu Sec.
191 of the NILa. It conclmded that despite the
execmtion of the Deeds of Truansferu and Trumst
Agrueeeent, the Asset Pruiviatization Trumst cannot be
declarued as the "holderu" of the smbject pruoeissoruy
notes foru the rueason that it is neitheru the payee oru
indorusee of the notes in possession therueof noru is it
the bearueru of said notes. The Comrut of Appeals
obseruvied that the bank, as the payee, did not
indoruse the notes to the Asset Pruiviatization Trumst
despite the execmtion of the Deeds of Truansferu and
Trumst Agrueeeent and that the notes continmed to
rueeain ith the bank mntil the institmtion of the
collection smit.
ATTY. CLaAROS
 185

With the bank as the "holderu" of the of the coeplaint as of the

pruoeissoruy notes, the Comrut of Appeals held that tiee of its fling, paying a
Toeas Ang is accomntable therueforu in his capacity as total of only P640.00(!!!) as
an accoeeodation paruty. Citing Sec. 29 of the NILa, fling and comrut docket fees
he is liable to the bank in spite of the lateru's althomgh the total sme
kno ledge, at the tiee of taking the notes, that he inviolvied as of that tiee as
is only an accoeeodation paruty. Morueovieru, as a coo P647,566.75 inclmding 20%
eakeru ho agrueed to be jointly and sevierually liable atoruney's fees. In fact, the
on the pruoeissoruy notes, Toeas Ang cannot vialidly stated interuest in the body of
set mp the defense that he did not rueceivie any the coeplaint alone aeomnt
consideruation therueforu as the fact that the loan as to P328,373.39 ( hich is
gruanted to the pruincipal debtoru alrueady constitmtes a actmally ciompiounded and cap
smfficient consideruation. italized ) in both camses of
action and the total seruviice
Fmrutheru, the Comrut of Appeals agrueed ith
and ovierudme penalties and
the bank that the experuience of Toeas Ang in
charuges and atoruney's fees
bmsiness ruenderued it ieplamsible that he omld jmst
fmrutheru aeomnt to
sign the pruoeissoruy notes as a cooeakeru ithomt
P239,193.36 in both camses of
evien checking the rueal aeomnt of the debt to be
action, as of Jmly 31, 1990, the
incmrurued, oru that he eeruely acted on the belief that
tiee of fling of the
the frust loan application as cancelled. Accoruding
coeplaint. Signifcantly,
to the appellate comrut, it is apparuent that he as
appellant fruamdmlently eisled
negligent in falling foru the alibi of Antonio Ang Eng
the Comrut, descruibing the 14%
Laiong and smch fact omld not seruvie to exoneruate
impiosition as interest, hen
hie fruoe his ruesponsibility mnderu the notes.
in fact the saee was
Nonetheless, the Comrut of Appeals denied capitalized as principal by
the claies of the bank foru seruviice, penalty and appellant bank evieruy eonth
ovierudme charuges as ell as atoruney's fees on the to earun eorue interuest, as
gruomnd that the pruoeissoruy notes eade no eention stated in the notes. In viie
of smch charuges/fees. therueof, the truial comrut nevieru
In his eotion foru rueconsideruation, 40 Toeas acqmirued jmruisdiction ovieru the
Ang ruaised foru the frust tiee the assigned eruruorus as case and the saee eay not
follo s: be no coruruected by the fling
of defciency fees becamse the
xxx xxx xxx camses of action had alrueady
2) Related to the abovie jmruisdictional pruescruibed and eorue
issmes, defendantoappellee ieporutantly, the jmruisdiction
Toeas Ang has ruecently of the Mmnicipal Truial Comrut
discovierued that mpon the had been incrueased to
fling of the coeplaint on P100,000.00 in principal
Amgmst 28, 1990, mnderu the claims last Maruch 20, 1999,
jmruisdictional rumle laid do n pmrusmant to SC Cirucmlaru No.
in BP Blg. 129, appellant bank 21o99, section 5 of RA No.
fruamdmlently failed to specify 7691, and section 31, Book I
the aeomnt of the 1987 Adeinistruativie
of ciompiounded interuest at Code. In otheru oruds, as of
14% peru annme, seruviice today, jmruisdiction ovieru the
charuges at 2% peru annme and smbject falls ithin the
ovierudme penalty charuges at exclmsivie jmruisdiction of the
12% peru annme in the pruayeru MTC, paruticmlaruly if the bank
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

foruegoes capitalization of the
stipmlated interuest.
3) BY FAILaING TO GIVE NOTICE OF ITS
APPEALa AND APPEALa BRIEF
TO APPELaLaEE ANG ENG
LaIONG, THE APPEALaED
JUDGMENT OF THE TRIALa
COURT WHICH LaEFT OUT
TOMAS ANG'S CROSSoCLaAIM
AGAINST ENG LaIONG
(BECAUSE IT DISMISSED THE
MAIN CLaAIM), HAD LaONG
BECOME FINALa AND
EXECUTORY, AS AGAINST ENG
LaIONG. Accorudingly, Toeas
Ang's ruight of smbruogation
against Ang Eng Laiong,
expruessed in his cruossoclaie,
is no SEVERALa TIMES
forueclosed becamse of the
famlt oru negligence of
appellant bank since 1979 mp
to its insistence of an exoparute
truial, and no hen it failed
to seruvie notice of appeal and
appellant's bruief mpon hie.
Accorudingly, appellee Toeas
Ang shomld be rueleased fruoe
his smruetyship obligation
pmrusmant to Arut. 2080 of the
Civiil Code. The abovie is
ruelated to the issmes abovieo
stated.
4) This Comrut eay havie erurued in
ADDING oru ASSIGNING its
o n bill of eruruoru foru the
beneft of appellant bank
hich defruamded the jmdiciaruy
by the payeent of defcient
docket fees. 41
Finding no cogent oru coepelling rueason to
distmrub the Decision, the Comrut of Appeals denied
the eotion in its Resolmtion dated Deceeberu 26,
2000. 42
Petitioneru no smbeits the follo ing issmes
foru ruesolmtion:
KIMBUTAO NEGO SYLaLaABUS
186
1. Is [A]ruticle 2080 of the Civiil Code
applicable to discharuge
petitioneru Toeas Ang as
accoeeodation eakeru oru
smruety becamse of the failmrue
of [pruiviate] ruespondent bank
to seruvie its notice of appeal
mpon the pruincipal debtoru,
ruespondent Eng Laiong?
2. Did the truial comrut havie jmruisdiction
ovieru the case at all?
3. Did the Comrut of Appeals [coeeit]
eruruoru in assigning its o n
eruruoru and ruaising its o n
issme?
4. Arue petitioneru's otheru rueal and
perusonal defenses smch as
smccessivie extensions
compled ith fruamdmlent
collmsion to hide Eng Laiong's
defamlt, the payee's gruant of
additional bmrudens, compled
ith the insolviency of the
pruincipal debtoru, and the
defense of incoeplete bmt
delivierued instrumeent,
eeruitoruioms? 43
Petitioneru allegedly learuned afteru the
pruoemlgation of the Comrut of Appeals' decision that,
pmrusmant to the paruties' agrueeeent on the
coepomnding of interuest ith the pruincipal aeomnt
(peru eonth in case of defamlt), the interuest on the
pruoeissoruy notes as of Jmly 31, 1990 shomld havie
been only P81,647.22 foru PN No. DVOo78o382
(instead of P203,538.98) and P49,618.33 foru PN No.
DVOo78o390 (instead of P125,334.41) hile the
pruincipal debt as of said date shomld incruease to
P647,566.75 (instead of P539,638.96). He smbeits
that the bank caruefmlly and shrue dly hid the fact by
descruibing the aeomnts as interuest instead of being
parut of eitheru the pruincipal oru penalty in oruderu to
pay a lesseru aeomnt of docket fees. Accoruding to
hie, the total fees that shomld havie been paid at
the tiee of the fling of the coeplaint on Amgmst 28,
1990 as P2,216.30 and not P614.00 oru a shorutage
of 71%. Petitioneru contends that the bank eay not
no pay the defciency becamse the last deeand
leteru sent to hie as dated Septeeberu 9, 1986, oru
ATTY. CLaAROS

eorue than t enty yearus havie elapsed smch that
pruescruiption had alrueady set in. Conseqmently, the
bank's claie emst be diseissed as the truial comrut
loses jmruisdiction ovieru the case.
Petitioneru also arugmes that the Comrut of
Appeals shomld not havie assigned its o n eruruoru and
ruaised it as an issme of the case, contending that no
qmestion shomld be enterutained on appeal mnless it
has been advianced in the comrut belo oru is ithin
the issmes eade by the paruties in the pleadings. At
any ruate, he opines that the appellate comrut's
decision that the bank is the rueal paruty in interuest
becamse it is the payee naeed in the note oru the
holderu therueof is too sieplistic since: (1) the po eru
and contruol of Asset Pruiviatization Trumst ovieru the
bank arue clearu fruoe the explicit terues of the dmly
cerutifed trumst docmeents and deeds of truansferu and
arue confrueed by the ne spaperu clippings; (2) evien
mnderu P.D. No. 902oA oru the Generual Banking Act,
herue a coruporuation oru a bank is mnderu rueceivieruship,
conseruviation oru ruehabilitation, it is only the
ruepruesentativie (liqmidatoru, rueceivieru, trumstee oru
conseruviatoru) ho eay pruoperuly act foru said entity,
and, in this case, the bank as held by Asset
Pruiviatization Trumst as trumstee; and (3) it is not
entiruely accmruate to say that the payee ho has not
indorused the notes in all cases is the rueal paruty in
interuest becamse the ruights of the payee eay be
smbject of an assigneent of incoruporueal ruights mnderu
Aruticles 1624 and 1625 of the Civiil Code.
Laastly, petitioneru eaintains that hen
ruespondent Bank seruvied its notice of appeal and
appellant's bruief only on hie, it ruenderued the
jmdgeent of the truial comrut fnal and execmtoruy ith
ruespect to Antonio Ang Eng Laiong, hich, in eiect,
rueleased hie (Antonio Ang Eng Laiong) fruoe any and
all liability mnderu the pruoeissoruy notes and, therueby,
forueclosed petitioneru's cruossoclaies. By smch act, the
bank, evien if it be the "holderu" of the pruoeissoruy
notes, allegedly discharuged a sieple contruact foru the
payeent of eoney (Sections 119 [d] and
122, NILa [Act No. 2031]), prueviented a smruety like
petitioneru fruoe being smbruogated in the shoes of his
pruincipal (Aruticle 2080, Civiil Code), and iepairued the
notes, pruodmcing the eiect of payeent (Aruticle
1249, Civiil Code).
The petition is mneeruitoruioms.
KIMBUTAO NEGO SYLaLaABUS
187
Pruocedmrually, it is ell ithin the amthoruity
of the Comrut of Appeals to ruaise, if it deees pruoperu
mnderu the cirucmestances obtaining, eruruoru/s not
assigned on an appealed case. In Mendioza v.
Bautsta, 44 this Comrut ruecognized the bruoad
discruetionaruy po eru of an appellate comrut to aivie
the lack of pruoperu assigneent of eruruorus and to
consideru eruruorus not assigned, thms:
As a rumle, no issme eay be
ruaised on appeal mnless it has been
bruomght beforue the lo eru truibmnal foru
its consideruation. Higheru comruts arue
prueclmded fruoe enterutaining eaterus
neitheru alleged in the pleadings noru
ruaised dmruing the pruoceedings belo ,
bmt vientilated foru the frust tiee only
in a eotion foru rueconsideruation oru on
appeal.
Ho evieru, as ith eost
pruocedmrual rumles, this eaxie is
smbject to exceptions. Indeed, omru
rumles ruecognize the bruoad
discruetionaruy po eru of an appellate
comrut to aivie the lack of pruoperu
assigneent of eruruorus and to consideru
eruruorus not assigned. Section 8 of Rmle
51 of the Rmles of Comrut pruoviides:
SEC. 8. Questions that may be
decided. — No eruruoru hich does not
aiect the jmruisdiction ovieru the smbject
eateru oru the vialidity of the jmdgeent
appealed fruoe oru the pruoceedings
theruein ill be considerued, mnless
stated in the assigneent of eruruorus, oru
closely ruelated to oru dependent on an
assigned eruruoru and pruoperuly arugmed in
the bruief, savie as the comrut eay pass
mpon plain eruruorus and cleruical eruruorus.
Thms, an appellate comrut is
clothed ith aeple amthoruity to
rueviie rumlings evien if they arue not
assigned as eruruorus in the appeal in
these instances: (a) gruomnds not
assigned as eruruorus bmt aiecting
jmruisdiction ovieru the smbject eateru;
(b) eaterus not assigned as eruruorus on
appeal bmt arue eviidently plain oru
cleruical eruruorus ithin conteeplation
ATTY. CLaAROS

of la ; (c) eaterus not assigned as
eruruorus on appeal bmt consideruation of
hich is necessaruy in aruruiviing at a jmst
decision and coeplete ruesolmtion of
the case oru to seruvie the interuests of
jmstice oru to avioid dispensing
pieceeeal jmstice; (d) eaterus not
specifcally assigned as eruruorus on
appeal bmt ruaised in the truial comrut
and arue eaterus of ruecorud haviing
soee bearuing on the issme smbeited
hich the paruties failed to ruaise oru
hich the lo eru comrut ignorued; (e)
eaterus not assigned as eruruorus on
appeal bmt closely ruelated to an eruruoru
assigned; and (f) eaterus not assigned
as eruruorus on appeal bmt mpon hich
the deterueination of a qmestion
pruoperuly assigned is dependent.
(Citations oeited) 45
To the Comrut's eind, evien if the Comrut of
Appeals ruegaruded petitioneru's t o assigned eruruorus
as "irurueleviant" and "not eeruitoruioms," the issme of
hetheru the truial comrut erurued in diseissing the
coeplaint foru collection of sme of eoney foru lack of
camse of action (on the gruomnd that the bank as
not the "holderu" of the notes at the tiee of the
fling of the action) is in rueality cliosely related
tio and determinant iof the ruesolmtion of hetheru the
lo eru comrut coruruectly rumled in not holding Antonio
Ang Eng Laiong and petitioneru Toeas Ang liable to
the bank on theiru mnpaid loans despite
docmeentaruy exhibits allegedly pruoviing theiru
obligations and in diseissing the coeplaint based
on ne spaperu clippings. Hence, no eruruoru comld be
ascruibed to the Comrut of Appeals on this point.
No , the eorue rueleviant qmestion is: ho is
the rueal paruty in interuest at the tiee of the
institmtion of the coeplaint, is it the bank oru the
Asset Pruiviatization Trumst?
To ans eru the qmeruy, a bruief historuy on the
crueation of the Asset Pruiviatization Trumst is pruoperu.
Taking into accomnt the ieperuativie need of
forueally lamnching a pruogruae foru the ruationalization
of the govieruneent coruporuate sectoru, then Pruesident
Coruazon C. Aqmino issmed Pruoclaeation No.
50 46 on Deceeberu 8, 1986. As one of the t in
corunerustones of the pruogruae as to establish the
KIMBUTAO NEGO SYLaLaABUS
188
pruiviatization of a good nmeberu of govieruneent
coruporuations, the pruoclaeation crueated the Asset
Pruiviatization Trumst, hich omld, foru the beneft of
the National Govieruneent, take title to and
possession of, conseruvie, pruoviisionally eanage and
dispose of truansferurued assets that erue identifed
foru pruiviatization oru disposition. 47
In accorudance ith the pruoviisions of Section
23 48 of the pruoclaeation, then Pruesident Aqmino
smbseqmently issmed Adeinistruativie Oruderu No. 14 on
Februmaruy 3, 1987, hich appruovied the identifcation
of and truansferu to the National Govieruneent of
cerutain assets (consisting of loans, eqmity
inviesteents, accrumed interuest rueceiviables, acqmirued
assets and otheru assets) and liabilities (consisting of
deposits, boruruo ings, otheru liabilities and
contingent gmaruantees) of the Devielopeent Bank of
the Philippines (DBP) and the Philippine National
Bank (PNB). The truansferu of assets as iepleeented
thruomgh a Deed of Truansferu execmted on Februmaruy
27, 1987 bet een the National Govieruneent, on one
hand, and the DBP and PNB, on the otheru. In tmrun,
the National Govieruneent designated the Asset
Pruiviatization Trumst to act as its trumstee thruomgh a
Trumst Agrueeeent, herueby the nonoperuforueing
accomnts of DBP and PNB, inclmding, aeong otherus,
the DBP's eqmity ith ruespondent Bank, erue
entrumsted to the Asset Pruiviatization Trumst. 49 As
pruoviided foru in the Agrueeeent, aeong the po erus
and dmties of the Asset Pruiviatization Trumst ith
ruespect to the trumst pruoperuties consisting of
rueceiviables as to handle theiru adeinistruation and
collection by bruinging smit to enforuce payeent of
the obligations oru any installeent therueof oru setling
oru coepruoeising any of smch obligations oru any
otheru claie oru deeand hich the Govieruneent eay
havie against any peruson oru perusons, and to do all
acts, institmte all pruoceedings, and to exerucise all
otheru ruights, po erus, and pruiviileges of o neruship
that an absolmte o neru of the pruoperuties omld
otheru ise havie the ruight to do. 50
Incidentally, the existence of the Asset
Pruiviatization Trumst omld havie expirued fvie (5) yearus
fruoe the date of issmance of Pruoclaeation No.
50. 51 Ho evieru, its oruiginal terue as extended
fruoe Deceeberu 8, 1991 mp to Amgmst 31,
1992, 52 and again fruoe Deceeberu 31, 1993 mntil
Jmne 30, 1995, 53 and then fruoe Jmly 1, 1995 mp to
Deceeberu 31, 1999, 54 and fmrutheru fruoe Janmaruy 1,
ATTY. CLaAROS

2000 mntil Deceeberu 31, 2000. 55 Thenceforuth, the
Pruiviatization and Manageeent Office as
established and took ovieru, aeong otherus, the
po erus, dmties and fmnctions of the Asset
Pruiviatization Trumst mnderu the pruoclaeation. 56
Based on the abovie backdruop, ruespondent
Bank does not appearu to be the rueal paruty in
interuest hen it institmted the collection smit on
Amgmst 28, 1990 against Antonio Ang Eng Laiong and
petitioneru Toeas Ang. At the tiee the coeplaint
as fled in the truial comrut, it as the Asset
Pruiviatization Trumst hich had the amthoruity to
enforuce its claies against both debtorus. In fact,
dmruing the prueotruial conferuence, Aty. Roderuick
Oruallo, comnsel foru the bank, openly adeited that it
as mnderu the trumsteeship of the Asset Pruiviatization
Trumst. 57 The Asset Pruiviatization Trumst, hich shomld
havie been ruepruesented by the Office of the
Govieruneent Coruporuate Comnsel, had the amthoruity
to fle and pruosecmte the case.
The foruegoing not ithstanding, this Comrut
can not, at pruesent, rueadily smbscruibe to petitioneru's
insistence that the case emst be diseissed.
Signifcantly, it stands ithomt ruefmte, both in the
pleadings as ell as in the eviidence pruesented
dmruing the truial and mp to the tiee this case rueached
the Comrut, that the issme had been ruenderued eoot
ith the occmruruence of a smperuviening evient — the
"bmyoback" of the bank by its forueeru o neru,
Laeonarudo Ty, soeetiee in Octoberu 1993. By smch
rueoacqmisition fruoe the Asset Pruiviatization Trumst
hen the case as still pending in the lo eru comrut,
the bank rueclaieed its rueal and actmal interuest ovieru
the mnpaid pruoeissoruy notes; hence, it comld
ruightmlly qmalify as a "holderu" 58 therueof mnderu
the NILa.
Notably, Section 29 of the NILa defnes an
accoeeodation paruty as a peruson " ho has signed
the instrumeent as eakeru, drua eru, acceptoru, oru
indoruseru, ithomt rueceiviing vialme therueforu, and foru
the pmrupose of lending his naee to soee otheru
peruson." As gleaned fruoe the text, an
accoeeodation paruty is one ho eeets all the
thruee rueqmisites, viz: (1) he emst be a paruty to the
instrumeent, signing as eakeru, drua eru, acceptoru, oru
indoruseru; (2) he emst not rueceivie vialme therueforu;
and (3) he emst sign foru the pmrupose of lending his
naee oru cruedit to soee otheru peruson. 59 An
accoeeodation paruty lends his naee to enable the
KIMBUTAO NEGO SYLaLaABUS
189
accoeeodated paruty to obtain cruedit oru to ruaise
eoney; he rueceivies no parut of the consideruation foru
the instrumeent bmt assmees liability to the otheru
paruty/ies therueto. 60 The accoeeodation paruty is
liable on the instrumeent to a holderu foru vialme evien
thomgh the holderu, at the tiee of taking the
instrumeent, kne hie oru heru to be eeruely an
accoeeodation paruty, as if the contruact as not foru
accoeeodation. 61
As petitioneru ackno ledged it to be, the
ruelation bet een an accoeeodation paruty and the
accoeeodated paruty is one of pruincipal and smruety
— the accoeeodation paruty being the smruety. 62 As
smch, he is deeeed an oruiginal pruoeisoru and debtoru
fruoe the beginning; 63 he is considerued in la as
the saee paruty as the debtoru in ruelation to
hatevieru is adjmdged tomching the obligation of the
lateru since theiru liabilities arue interu ovien as to be
inseparuable. 64 Althomgh a contruact of smruetyship is
in essence accessoruy oru collaterual to a vialid pruincipal
obligation, the smruety's liability to the crueditoru
is immediate, primary and absiolute; he
is directly andequally bomnd ith the
pruincipal. 65 As an eqmivialent of a ruegmlaru paruty to
the mnderutaking, a smruety becoees liable to the
debt and dmty of the pruincipal obligoru evien ithomt
possessing a diruect oru perusonal interuest in the
obligations noru does he rueceivie any beneft
theruefruoe. 66
Contruaruy to petitioneru's adaeant stand,
ho evieru, Aruticle 2080 67 of the Civiil Code does not
apply in a contruact of smruetyship. 68 Arut. 2047 of the
Civiil Code states that if a peruson binds hieself
solidaruily ith the pruincipal debtoru, the pruoviisions of
Section 4, Chapteru 3, Title I, Book IV of the Civiil
Code emst be obseruvied. Accorudingly, Aruticles 1207
mp to 1222 of the Code (on joint and solidaruy
obligations) shall govierun the ruelationship of
petitioneru ith the bank.
The case of Inciiong, Jr. v. CA 69 is
illmeinating:
Petitioneru also arugmes that
the diseissal of the coeplaint against
Naybe, the pruincipal debtoru, and
against Pantanosas, his cooeakeru,
constitmted a ruelease of his obligation,
especially becamse the diseissal of
the case against Pantanosas as mpon
ATTY. CLaAROS

the eotion of pruiviate ruespondent
itself. He cites as basis foru his
arugmeent, Aruticle 2080 of the Civiil
Code hich pruoviides that:
"The gmaruantorus, evien thomgh
they be solidaruy, arue rueleased fruoe
theiru obligation henevieru by coee
act of the crueditoru, they cannot be
smbruogated to the ruights, eorutgages,
and prueferuences of the lateru."
It is to be noted, ho evieru,
that petitioneru signed the pruoeissoruy
note as a solidaruy cooeakeru and not
as a gmaruantoru. This is patent evien
fruoe the frust sentence of the
pruoeissoruy note hich states as
follo s:
"Ninety one (91) days afteru
date, foru vialme rueceivied, I/ e,
JOINTLaY and SEVERALaLaY pruoeise to
pay to the PHILaIPPINE BANK OF
COMMUNICATIONS at its office in the
City of Cagayan de Oruo, Philippines
the sme of FIFTY THOUSAND ONLaY
(P50,000.00) Pesos, Philippine
Cmruruency, togetheru ith interuest . . .
at the ruate of SIXTEEN (16) peru cent
peru annme mntil fmlly paid."
A solidaruy oru joint and sevierual
obligation is one in hich each debtoru
is liable foru the entirue obligation, and
each crueditoru is entitled to deeand
the hole obligation. On the otheru
hand, Aruticle 2047 of the Civiil Code
states:
"By gmaruanty a peruson, called
the gmaruantoru, binds hieself to the
crueditoru to fmlfll the obligation of the
pruincipal debtoru in case the latter
shiould fail tio dio sio.
If a peruson binds hieself
solidaruily ith the pruincipal debtoru,
the pruoviisions of Section 4, Chapteru 3,
Title I of this Book shall be obseruvied.
In smch a case the contruact is called a
smruetyship." (Italics smpplied.)
be "jiointly and severally" liable mnderu the t o
KIMBUTAO NEGO SYLaLaABUS
190
While a gmaruantoru eay bind
hieself solidaruily ith the pruincipal
debtoru, the liability of a gmaruantoru is
diieruent fruoe that of a solidaruy
debtoru. Thms, Tolentino explains:
"A gmaruantoru ho binds
hieself in siolidum ith the pruincipal
debtoru mnderu the pruoviisions of the
second paruagruaph does not becoee a
solidaruy coodebtoru to all intents and
pmruposes. Therue is a diieruence
bet een a solidaruy coodebtoru, and
a fiadior in siolidum (smruety). The lateru,
omtside of the liability he assmees to
pay the debt beforue the pruoperuty of
the pruincipal debtoru has been
exhamsted, ruetains all the otheru ruights,
actions and benefts hich perutain to
hie by rueason of ruights of the fiansa;
hile a solidaruy coodebtoru has no
otheru ruights than those besto ed
mpon hie in Section 4, Chapteru 3, title
I, Book IV of the Civiil Code."
Section 4, Chapteru 3, Title I,
Book IV of the Civiil Code states the
la on joint and sevierual obligations.
Underu Arut. 1207 therueof, hen therue
arue t o oru eorue debtorus in one and
the saee obligation, the pruesmeption
is that obligation is joint so that each
of the debtorus is liable only foru a
pruoporutionate parut of the debt. Therue
is a solidaruily liability only hen the
obligation expruessly so states, hen
the la so pruoviides oru hen the
natmrue of the obligation so rueqmirues.
Becamse the pruoeissoruy note
inviolvied in this case expruessly states
that the thruee signatoruies theruein
arue jiointly and severally liable, any
one, soee oru all of thee eay be
pruoceeded against foru the entirue
obligation. The choice is left to the
solidaruy crueditoru to deterueine against
hoe he ill enforuce collection.
(Citations oeited) 70
In the instant case, petitioneru agrueed to
ATTY. CLaAROS

pruoeissoruy notes that he coosigned ith Antonio
Ang Eng Laiong as the pruincipal debtoru. This being so,
it is coepletely ieeateruial if the bank omld opt to
pruoceed only against petitioneru oru Antonio Ang Eng
Laiong oru both of thee since the la conferus mpon
the crueditoru the prueruogativie to choose hetheru to
enforuce the entirue obligation against any ione, siome
ior all of the debtorus. Nonetheless, petitioneru, as an
accoeeodation paruty, eay seek rueiebmruseeent
fruoe Antonio Ang Eng Laiong, being the paruty
accoeeodated. 71
It is plainly eistaken foru petitioneru to say
that jmst becamse the bank failed to seruvie the notice
of appeal and appellant's bruief to Antonio Ang Eng
Laiong, the truial comrut's jmdgeent, in eiect, becaee
fnal and execmtoruy as against the lateru and,
therueby, barus his (petitioneru's) cruossoclaies against
hie: First, althomgh no notice of appeal and
appellant's bruief erue seruvied to Antonio Ang Eng
Laiong, he as nonetheless iepleaded in the case
since his naee appearued in the caption of both the
notice and the bruief as one of the defendantso
appellees; 72 Seciond, despite inclmding in the
caption of the appellee's bruief his coodebtoru as one
of the defendantsoappellees, petitioneru did not also
seruvie hie a copy therueof; 73 Third, in the caption of
the Comrut of Appeals' decision, Antonio Ang Eng
Laiong as expruessly naeed as one of the
defendantsoappellees; 74 and Fiourth, it as only in
his eotion foru rueconsideruation fruoe the advieruse
jmdgeent of the Comrut of Appeals that petitioneru
belatedly chose to seruvie notice to the comnsel of his
coodefendantoappellee. 75
Laike ise, this Comrut ruejects the contention
of Antonio Ang Eng Laiong, in his "special
appearuance" thruomgh comnsel, that the Comrut of
Appeals, emch less this Comrut, alrueady lacked
jmruisdiction ovieru his peruson oru ovieru the smbject
eateru ruelating to hie becamse he as not a paruty in
CAoG.R. CV No. 53413. Struess emst be laid of the
fact that he had t ice pmt hieself in defamlt — one,
in not fling a prueotruial bruief and anotheru, in not fling
his ans eru to petitioneru's cruossoclaies. As a eateru
of comruse, Antonio Ang Eng Laiong, being a paruty
declarued in defamlt, alrueady aivied his ruight to take
parut in the truial pruoceedings and had to contend
ith the jmdgeent ruenderued by the comrut based on
the eviidence pruesented by the bank and petitioneru.
Morueovieru, evien ithomt consideruing these defamlt
KIMBUTAO NEGO SYLaLaABUS
191
jmdgeents, Antonio Ang Eng Laiong evien
categoruically adeited haviing secmrued a loan
totaling P80,000. In his Ans eru to the coeplaint, he
did not deny smch liability bmt eeruely pleaded that
the bank "be oruderued to smbeit a eorue rueasonable
coepmtation" instead of collecting excessivie
interuest, penalty charuges, and atoruney's fees. Foru
failing to tenderu an issme and in not denying the
eateruial allegations stated in the coeplaint, a
jmdgeent on the pleadings 76 omld havie also been
pruoperu since not a single issme as generuated by the
Ans eru he fled.
As the pruoeissoruy notes erue not
discharuged oru iepairued thruomgh any act oru oeission
of the bank, Sections 119 (d) 77 and 122 78 of
the NILa as ell as Arut. 124979 of the Civiil Code
omld necessaruily fnd no application. Again, neitheru
as petitioneru's ruight of rueiebmruseeent barurued noru
as the bank's ruight to pruoceed against Antonio Ang
Eng Laiong expruessly ruenomnced by the oeission to
seruvie notice of appeal and appellant's bruief to a
paruty alrueady declarued in defamlt.
Conseqmently, in issming the t o pruoeissoruy
notes, petitioneru as accoeeodating paruty
aruruanted to the holderu in dme comruse that he
omld pay the saee accoruding to its tenoru. 80 It is
no defense to state on his parut that he did not
rueceivie any vialme therueforu 81 becamse the
phruase "withiout receiving value therefior" msed in
Sec. 29 of the NILa eeans " ithomt rueceiviing vialme
by viirutme of the instrumeent" and not as it is
apparuently smpposed to eean, " ithomt rueceiviing
payeent foru lending his naee." 82 Stated
diieruently, hen a thirud peruson adviances the face
vialme of the note to the accoeeodated paruty at the
tiee of its crueation, the consideruation foru the note
as ruegaruds its eakeru is the eoney advianced to the
accoeeodated paruty. It is enomgh that vialme as
givien foru the note at the tiee of its crueation. 83 As
in the instant case, a sme of eoney as rueceivied by
viirutme of the notes, hence, it is ieeateruial so faru as
the bank is conceruned hetheru one of the signerus,
paruticmlaruly petitioneru, has oru has not rueceivied
anything in payeent of the mse of his naee. 84
Underu the la , mpon the eatmruity of the
note, a smruety eay pay the debt, deeand the
collaterual secmruity, if therue be any, and dispose of it
to his beneft, oru, if applicable, smbruogate hieself in
the place of the crueditoru ith the ruight to enforuce
ATTY. CLaAROS

the gmaruanty against the otheru signerus of the note
foru the rueiebmruseeent of hat he is entitled to
ruecovieru fruoe thee. 85 Regruetably, none of these
erue prumdently done by petitioneru. When he as
frust notifed by the bank soeetiee in 1982
ruegaruding his accomntabilities mnderu the pruoeissoruy
notes, he lackadaisically ruelied on Antonio Ang Eng
Laiong, ho ruepruesented that he omld take carue of
the eateru, instead of diruectly coeemnicating ith
the bank foru its setleeent. 86 Thms, petitioneru
cannot no claie that he as pruejmdiced by the
smpposed "extension of tiee" givien by the bank to
his coodebtoru.
Fmrutherueorue, since the liability of an
accoeeodation paruty rueeains not only primary bmt
also uncionditional to a holderu foru vialme, evien if the
accoeeodated paruty rueceivies an extension of the
peruiod foru payeent ithomt the consent of the
accoeeodation paruty, the lateru is still liable foru the
hole obligation and smch extension does not
ruelease hie becamse as faru as a holderu foru vialme is
conceruned, he is a solidaruy coodebtoru. 87 In Clark v.
Sellner, 88 this Comrut held:
. . . The eerue delay of the
crueditoru in enforucing the gmaruanty has
not by any eeans iepairued his action
against the defendant. It shomld not
be lost sight of that the defendant's
signatmrue on the note is an assmruance
to the crueditoru that the collaterual
gmaruanty ill rueeain good, and that
otheru ise, he, the defendant, ill be
perusonally ruesponsible foru the
payeent.
Trume, that if the crueditoru had
done any act herueby the gmaruanty
as iepairued in its vialme, oru
discharuged, smch an act omld havie
holly oru parutially rueleased the
smruety; bmt it emst be borun in eind
that it is a ruecognized doctruine in the
eateru of smruetyship that ith ruespect
to the smruety, the crueditoru is mnderu no
obligation to display any diligence in
the enforuceeent of his ruights as a
crueditoru. His eerue inaction
indmlgence, passivieness, oru delay in
pruoceeding against the pruincipal
debtoru, oru the fact that he did not
KIMBUTAO NEGO SYLaLaABUS
192
enforuce the gmaruanty oru apply on the
payeent of smch fmnds as erue
aviailable, constitmte no defense at all
foru the smruety, mnless the contruact
expruessly rueqmirues diligence and
pruoeptness on the parut of the
crueditoru, hich is not the case in the
pruesent action. Therue is in soee
decisions a tendency to arud holding
that the crueditoru's laches eay
discharuge the smruety, eeaning by
laches a negligent forubearuance. This
theoruy, ho evieru, is not generually
accepted and the comruts aleost
mnivierusally consideru it essentially
inconsistent ith the ruelation of the
paruties to the note. (21 R.C.La., 1032o
1034) 89
Neitheru can petitioneru beneft fruoe the
alleged "insolviency" of Antonio Ang Eng Laiong foru
ant of clearu and conviincing eviidence pruoviing the
saee. Assmeing it to be trume, he also did not
exerucise diligence in deeanding secmruity to pruotect
hieself fruoe the dangeru therueof in the evient that
he (petitioneru) omld evientmally be smed by the
bank. Fmrutheru, hetheru petitioneru eay oru eay not
obtain secmruity fruoe Antonio Ang Eng Laiong cannot
in any eanneru aiect his liability to the bank; the
said rueeedy is a eateru of concerun exclmsiviely
bet een theeselvies as accoeeodation paruty and
accoeeodated paruty. The fact that petitioneru
stands only as a smruety in ruelation to Antonio Ang
Eng Laiong is ieeateruial to the claie of the bank and
does not a hit dieinish noru defeat the ruights of the
lateru as a holderu foru vialme. To sanction his theoruy is
to givie mn aruruanted legal ruecognition to the patent
absmrudity of a sitmation herue a cooeakeru, hen
smed on an instrumeent by a holderu in dme comruse
and foru vialme, can escape liability by the convienient
expedient of interuposing the defense that he is a
eeruely an accoeeodation paruty. 90
In sme, as ruegaruds the otheru issmes and
eruruorus alleged in this petition, the Comrut notes that
these erue the vieruy saee qmestions of fact ruaised
on appeal beforue the Comrut of Appeals, althomgh at
tiees comched in diieruent terues and explained
eorue lengthily in the petition. Smffice it to say that
the saee, being factmal, havie been satisfactoruily
passed mpon and considerued both by the truial and
ATTY. CLaAROS

appellate comruts. It is doctruinal that only eruruorus of
la and not of fact arue rueviie able by this Comrut in
petitions foru rueviie on certiorari mnderu Rmle 45 of
the Rmles of Comrut. Savie foru the eost cogent and
coepelling rueason, it is not omru fmnction mnderu the
rumle to exaeine, evialmate oru eigh the pruobativie
vialme of the eviidence pruesented by the paruties all
ovieru again. 91
WHEREFORE, the Octoberu 9, 2000 Decision
and Deceeberu 26, 2000 Resolmtion of the Comrut of
Appeals in CAoG.R. CV No. 53413 arue AFFIRMED.
The petition is DENIED foru lack of eeruit.
No costs.
SO ORDERED.
2. ROMEO C. GARCIA, pettioner, vs.
DIONISIO V.
LLAMAS, respiondent.
DECISION
PANGANIBAN, J p:
Noviation cannot be pruesmeed. It emst be
clearuly sho n eitheru by the expruess assent of the paruties
oru by the coeplete incoepatibility bet een the old and
the ne agrueeeents. Petitioneru heruein fails to sho
eitheru rueqmirueeent conviincingly; hence, the smeearuy
jmdgeent holding hie liable as a joint and solidaruy
debtoru stands.
The Case
Beforue ms is a Petition foru Reviie 1 mnderu Rmle
45 of the Rmles of Comrut, seeking to nmllify the
Novieeberu 26, 2001 Decision 2 and the Jmne 26, 2002
Resolmtion 3 of the Comrut of Appeals (CA) in CAoGR CV
No. 60521. The appellate comrut disposed as follo s:
"UPON THE VIEW WE TAKE
OF THIS CASE, THUS, the jmdgeent
appealed fruoe, insofaru as it perutains
to [Petitioneru] Roeeo Garucia, emst
be, as it herueby is, AFFIRMED, smbject
to the eodifcation that the a arud foru
atoruney's fees and cost of smit is
DELaETED. The porution of the
KIMBUTAO NEGO SYLaLaABUS
193
jmdgeent that perutains to . . . Edmarudo
de Jesms is SET ASIDE and VACATED.
Accorudingly, the case against . . .
Edmarudo de Jesms is REMANDED to
the comrut of oruigin foru pmruposes of
rueceiviing ex parte [Respondent]
Dionisio Lalaeas' eviidence against . . .
Edmarudo de Jesms." 4
The challenged Resolmtion, on the otheru hand,
denied petitioneru's Motion foru Reconsideruation.
The Antecedents
The antecedents of the case arue naruruated by the
CA as follo s:
"This case staruted omt as a
coeplaint foru sme of eoney and
daeages by . . . [Respondent] Dionisio
Lalaeas against . . . [Petitioneru] Roeeo
Garucia and Edmarudo de Jesms.
Docketed as Civiil Case No. Q97o32o
873, the coeplaint alleged that on 23
Deceeberu 1996[,] [petitioneru and de
Jesms] boruruo ed P400,000.00 fruoe
[ruespondent]; that, on the saee day,
[they] execmted a pruoeissoruy note
heruein they bomnd theeselvies
jointly and sevierually to pay the loan
on oru beforue 23 Janmaruy 1997 ith a
5% interuest peru eonth; that the loan
has long been ovierudme and, despite
ruepeated deeands, [petitioneru and de
Jesms] havie failed and ruefmsed to pay
it; and that, by rueason of the[iru]
mnjmstifed ruefmsal, [ruespondent] as
coepelled to engage the seruviices of
comnsel to hoe he agrueed to pay
25% of the sme to be ruecovierued fruoe
[petitioneru and de Jesms], plms
P2,000.00 foru evieruy appearuance in
comrut. Annexed to the coeplaint erue
the pruoeissoruy note abovieo
eentioned and a deeand leteru,
dated 02 May 1997, by [ruespondent]
addruessed to [petitioneru and de
Jesms].
"Resisting the coeplaint,
[Petitioneru Garucia,] in his [Ans eru,]
avierurued that he assmeed no liability
ATTY. CLaAROS

mnderu the pruoeissoruy note becamse
he signed it eeruely as an
accoeeodation paruty foru . . . de
Jesms; and, alterunativiely, that he is
ruelievied fruoe any liability aruising fruoe
the note inasemch as the loan had
been paid by . . . de Jesms by eeans of
a check dated 17 Apruil 1997; and that,
in any evient, the issmance of the
check and [ruespondent's] acceptance
therueof noviated oru smperuseded the
note.
"[Respondent] tenderued a
rueply to [Petitioneru] Garucia's ans eru,
theruemnderu asseruting that the loan
rueeained mnpaid foru the rueason that
the check issmed by . . . de Jesms
bomnced, and that [Petitioneru]
Garucia's ans eru as not evien
accoepanied by a cerutifcate of nono
forume shopping. Annexed to the rueply
erue the face of the check and the
ruevieruse side therueof.
"Foru his parut, . . . de Jesms
asseruted in his [A]ns eru ith
[C]omnteruclaie that omt of the
smpposed P400,000.00 loan, he
rueceivied only P360,000.00, the
P40,000.00 haviing been adviance
interuest therueon foru t o eonths, that
is, foru Janmaruy and Februmaruy 1997;
that[,] in fact[,] he paid the sme of
P120,000.00 by ay of interuests; that
this as eade hen [ruespondent's]
damghteru, one Nits LalaeasoQmijencio,
rueceivied fruoe the Centrual Police
Distruict Coeeand at Bicmtan, Tagmig,
Metruo Manila ( herue . . . de Jesms
oruked), the sme of P40,000.00,
ruepruesenting the peso eqmivialent of
his accmemlated leavie cruedits,
anotheru P40,000.00 as adviance
interuest, and still anotheru P40,000.00
as interuest foru the eonths of Maruch
and Apruil 1997; that he had difficmlty
in paying the loan and had asked
[ruespondent] foru an extension of tiee;
that [ruespondent] acted in bad faith in
institmting the case, [ruespondent]
KIMBUTAO NEGO SYLaLaABUS
194
haviing agrueed to accept the benefts
he (de Jesms) omld rueceivie foru his
ruetirueeent, bmt [ruespondent]
nonetheless fled the instant case
hile his ruetirueeent as being
pruocessed; and that, in defense of his
ruights, he agrueed to pay his comnsel
P20,000.00 [as] atoruney's fees, plms
P1,000.00 foru evieruy comrut
appearuance. TaIHEA
"Dmruing the prueotruial
conferuence, . . . de Jesms and his
la yeru did not appearu, noru did they
fle any prueotruial bruief. Neitheru did
[Petitioneru] Garucia fle a prueotruial
bruief, and his comnsel evien
eanifested that he omld no [longeru]
pruesent eviidence. Givien this
devielopeent, the truial comrut gavie
[ruespondent] perueission to pruesent
his eviidence ex parte against . . . de
Jesms; and, as ruegaruds [Petitioneru]
Garucia, the truial comrut diruected
[ruespondent] to fle a eotion foru
jmdgeent on the pleadings, and foru
[Petitioneru] Garucia to fle his coeeent
oru opposition therueto.
"Instead, [ruespondent] fled a
[M]otion to declarue [Petitioneru]
Garucia in defamlt and to allo hie to
pruesent his eviidence ex parte.
Mean hile, [Petitioneru] Garucia fled a
[M]anifestation smbeiing his
defense to a jmdgeent on the
pleadings. Smbseqmently,
[ruespondent] fled a [M]anifestation/
[M]otion to smbeit the case foru
jmdgeent on the pleadings,
ithdrua ing in the pruocess his
prueviioms eotion. Theruemnderu, he
asseruted that [petitioneru's and de
Jesms'] solidaruy liability mnderu the
pruoeissoruy note cannot be any
clearueru, and that the check issmed by
de Jesms did not discharuge the loan
since the check bomnced." 5
ATTY. CLaAROS
 195

On Jmly 7, 1998, the Regional Truial Comrut (RTC) the check as issmed pruecisely to pay foru the loan that
of Qmezon City (Bruanch 222) disposed of the case as as covierued by the pruoeissoruy note jointly and
follo s: sevierually mnderutaken by petitioneru and De Jesms.
Respondent's acceptance of the check did not seruvie to
"WHEREFORE, prueeises
eake De Jesms the sole debtoru becamse, first, the
considerued, jmdgeent on the
obligation incmrurued by hie and petitioneru as joint and
pleadings is herueby ruenderued in favioru
sevierual; and, seciond, the check — hich had been
of [ruespondent] and against
intended to extingmish the obligation — bomnced mpon
[petitioneru and De Jesms], ho arue
its pruesenteent.
herueby oruderued to pay, jointly and
sevierually, the [ruespondent] the Hence, this Petition. 7
follo ing smes, to it:
Issues
'1) P400,000.00 Petitioneru smbeits the follo ing issmes foru omru
ruepruesenting the pruincipal consideruation:
aeomnt plms 5% interuest
therueon peru eonth fruoe "I
Janmaruy 23, 1997 mntil the
Whetheru oru not the
saee shall havie been fmlly
Honoruable Comrut of Appeals gruaviely
paid, less the aeomnt of
erurued in not holding that noviation
P120,000.00 ruepruesenting
applies in the instant case as . . .
interuests alrueady paid by . . .
Edmarudo de Jesms had expruessly
de Jesms;
assmeed sole and exclmsivie liability
'2) P100,000.00 as foru the loan obligation he obtained
atoruney's fees plms fruoe . . . Respondent Dionisio Lalaeas,
appearuance fee of P2,000.00 as clearuly eviidenced by:
foru each day of [c]omrut
a) Issmance by . . . de Jesms of
appearuance, and;
a check in payeent of
'3) Cost of this the fmll aeomnt of the
smit.'" 6 loan of P400,000.00
in favioru of
Ruling iof the Ciourt iof Appeals Respondent Lalaeas,
The CA rumled that the truial comrut had erurued hen althomgh the check
it ruenderued a jmdgeent on the pleadings against De smbseqmently
Jesms. Accoruding to the appellate comrut, his Ans eru bomnced[;]
ruaised genminely contentioms issmes. Morueovieru, he as
b) Acceptance of the check by
still rueqmirued to pruesent his eviidence ex parte. Thms,
the . . .
ruespondent as not ipsio factio entitled to the RTC
ruespondent . . . hich
jmdgeent, evien thomgh De Jesms had been declarued in
ruesmlted in [the]
defamlt. The case against the lateru as therueforue
smbstitmtion by . . . de
rueeanded by the CA to the truial comrut foru the ex
Jesms oru [the
parte rueception of the forueeru's eviidence.
smperuseding of] the
As to petitioneru, the CA trueated his case as a pruoeissoruy note;
smeearuy jmdgeent, becamse his Ans eru had failed to
c) . . . de Jesms haviing paid
ruaise evien a single genmine issme ruegaruding any eateruial
interuests on the loan
fact.
in the total aeomnt of
The appellate comrut rumled that no noviation — P120,000.00;
expruess oru ieplied — had taken place hen ruespondent
accepted the check fruoe De Jesms. Accoruding to the CA,
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

d) The fact that Respondent
Lalaeas agrueed to the
pruoposal of . . . de
Jesms that dme to
fnancial difficmlties,
he be givien an
extension of tiee to
pay his loan
obligation and that
his ruetirueeent
benefts fruoe the
Philippine National
Police ill ans eru foru
said obligation.
"II
Whetheru oru not the
Honoruable Comrut of Appeals seruiomsly
erurued in not holding that the defense
of petitioneru that he as eeruely an
accoeeodation paruty, despite the
fact that the pruoeissoruy note
pruoviided foru a joint and solidaruy
liability, shomld havie been givien
eight and cruedence consideruing that
smbseqment evients sho ed that the
pruincipal obligoru as in trumth and in
fact . . . de Jesms, as eviidenced by the
foruegoing cirucmestances sho ing his
assmeption of sole liability ovieru the
loan obligation.
''III
Whetheru oru not jmdgeent on
the pleadings oru smeearuy jmdgeent
as pruoperuly aviailed of by
Respondent Lalaeas, despite the fact
that therue arue genmine issmes of fact,
hich the Honoruable Comrut of Appeals
itself adeited in its Decision, hich
call foru the pruesentation of eviidence
in a fmlloblo n truial." 8
Sieply pmt, the issmes arue the follo ing: 1)
hetheru therue as noviation of the obligation; 2)
hetheru the defense that petitioneru as only an
accoeeodation paruty had any basis; and 3) hetheru
the jmdgeent against hie — be it a jmdgeent on the
pleadings oru a smeearuy jmdgeent — as pruoperu.
KIMBUTAO NEGO SYLaLaABUS
196
The Ciourt's Ruling
The Petition has no eeruit
First Issue:
Niovation
Petitioneru seeks to extruicate hieself fruoe his
obligation as joint and solidaruy debtoru by insisting that
noviation took place, eitheru thruomgh the smbstitmtion of
De Jesms as sole debtoru oru the rueplaceeent of the
pruoeissoruy note by the check. Alterunativiely, the forueeru
arugmes that the oruiginal obligation as extingmished
hen the lateru, ho as his cooobligoru, "paid" the loan
ith the check. EDSHcT
The fallacy of the second (alterunativie) arugmeent
is all too apparuent. The check comld not havie
extingmished the obligation, becamse it bomnced mpon
pruesenteent. By la , 9 the delivieruy of a check pruodmces
the eiect of payeent only hen it is encashed.
We no coee to the eain issme of hetheru
noviation took place.
Noviation is a eode of extingmishing an
obligation by changing its objects oru pruincipal
obligations, by smbstitmting a ne debtoru in place of the
old one, oru by smbruogating a thirud peruson to the ruights of
the crueditoru. 10 Aruticle 1293 of the Civiil Code defnes
noviation as follo s:
"Arut. 1293. Noviation hich
consists in smbstitmting a ne debtoru
in the place of the oruiginal one, eay
be eade evien ithomt the kno ledge
oru against the ill of the lateru, bmt
not ithomt the consent of the
crueditoru. Payeent by the ne debtoru
givies hie ruights eentioned in aruticles
1236 and 1237."
In generual, therue arue t o eodes of smbstitmting
the peruson of the debtoru: (1) expriomisiion and
(2) delegaciion. In expriomisiion, the initiativie foru the
change does not coee fruoe — and eay evien be eade
ithomt the kno ledge of — the debtoru, since it
consists of a thirud peruson's assmeption of the
obligation. As smch, it logically rueqmirues the consent of
the thirud peruson and the crueditoru. In delegaciion, the
debtoru oierus, and the crueditoru accepts, a thirud peruson
ho consents to the smbstitmtion and assmees the
obligation; thms, the consent of these thruee perusons arue
ATTY. CLaAROS

necessaruy. 11 Both eodes of smbstitmtion by the debtoru
rueqmirue the consent of the crueditoru. 12
Noviation eay also be extinctivie oru
eodifcatoruy. It is extinctivie hen an old obligation is
terueinated by the crueation of a ne one that takes the
place of the forueeru. It is eeruely eodifcatoruy hen the
old obligation smbsists to the extent that it rueeains
coepatible ith the aeendatoruy
agrueeeent. 13 Whetheru extinctivie oru eodifcatoruy,
noviation is eade eitheru by changing the object oru the
pruincipal conditions, rueferurued to as objectivie oru rueal
noviation; oru by smbstitmting the peruson of the debtoru oru
smbruogating a thirud peruson to the ruights of the crueditoru,
an act kno n as smbjectivie oru perusonal noviation. 14 Foru
noviation to take place, the follo ing rueqmisites emst
concmru:
1) Therue emst be a prueviioms vialid
obligation.
2) The paruties conceruned emst agruee
to a ne contruact.
3) The old contruact emst be
extingmished.
4) Therue emst be a vialid ne
contruact. 15
Noviation eay also be expruess oru ieplied. It is
expruess hen the ne obligation declarues in
mneqmiviocal terues that the old obligation is
extingmished. It is ieplied hen the ne obligation is
incoepatible ith the old one on evieruy point. 16 The
test of incoepatibility is hetheru the t o obligations
can stand togetheru, each one ith its o n independent
existence. 17
Applying the foruegoing to the instant case, e the solidaruy debtorus oru soee oru all of
hold that no noviation took place.
The paruties did not mneqmiviocally declarue that
the old obligation had been extingmished by the
issmance and the acceptance of the check, oru that the
check omld take the place of the note. Therue is no
incoepatibility bet een the pruoeissoruy note and the
check. As the CA coruruectly obseruvied, the check had been
issmed pruecisely to ans eru foru the obligation. On the
one hand, the note eviidences the loan obligation; and
on the otheru, the check ans erus foru it. Veruily, the t o
can stand togetheru.
KIMBUTAO NEGO SYLaLaABUS
197
Neitheru comld the payeent of interuests —
hich, in petitioneru's viie , also constitmtes
noviation 18 — change the terues and conditions of the
obligation. Smch payeent as alrueady pruoviided foru in
the pruoeissoruy note and, like the check, as totally in
accorud ith the terues therueof.
Also mneeruitoruioms is petitioneru's arugmeent that
the obligation as noviated by the smbstitmtion of
debtorus. In oruderu to change the peruson of the debtoru,
the old one emst be expruessly rueleased fruoe the
obligation, and the thirud peruson oru ne debtoru emst
assmee the forueeru's place in the ruelation. 19 Wello
setled is the rumle that noviation is nevieru
pruesmeed. 20 Conseqmently, that hich aruises fruoe a
pmruporuted change in the peruson of the debtoru emst be
clearu and expruess. 21 It is thms incmebent on petitioneru
to sho clearuly and mneqmiviocally that noviation has
indeed taken place.
In the pruesent case, petitioneru has not sho n
that he as expruessly rueleased fruoe the obligation, that
a thirud peruson as smbstitmted in his place, oru that the
joint and solidaruy obligation as cancelled and
smbstitmted by the solitaruy mnderutaking of De Jesms. The
CA aptly held:
". . . Plaintii's acceptance of
the bme check did not ruesmlt in
smbstitmtion by de Jesms eitheru, the
natmrue of the obligation being solidaruy
dme to the fact that the pruoeissoruy
note expruessly declarued that the
liability of appellants theruemnderu is
joint and [solidaruy.] Reason: mnderu
the la , a crueditoru eay deeand
payeent oru peruforueance fruoe one of
thee siemltaneomsly, and payeent
eade by one of thee extingmishes
the obligation. It therueforue follo s
that in case the crueditoru fails to
collect fruoe one of the solidaruy
debtorus, he eay still pruoceed against
the otheru oru otherus . . . " 22
Morueovieru, it emst be noted that foru noviation to
be vialid and legal, the la rueqmirues that the crueditoru
expruessly consent to the smbstitmtion of a ne
debtoru. 23 Since noviation ieplies a aivieru of the ruight
the crueditoru had beforue the noviation, smch aivieru emst
be expruess. 24 It cannot be smpposed, ithomt clearu
ATTY. CLaAROS

pruoof, that the pruesent ruespondent has done a ay ith
his ruight to exact fmlflleent fruoe eitheru of the solidaruy
debtorus. 25
Morue ieporutant, De Jesms as not a thirud
peruson to the obligation. Fruoe the beginning, he as a
joint and solidaruy obligoru of the P400,000 loan; thms, he
can be rueleased fruoe it only mpon its extingmisheent.
Respondent's acceptance of his check did not change
the peruson of the debtoru, becamse a joint and solidaruy
obligoru is rueqmirued to pay the entiruety of the obligation.
It emst be noted that in a solidaruy obligation,
the crueditoru is entitled to deeand the satisfaction of the
hole obligation fruoe any oru all of the debtorus. 26 It is
mp to the forueeru to deterueine against hoe to enforuce
collection. 27 Haviing eade hieself jointly and sevierually
liable ith De Jesms, petitioneru is therueforue liable 28 foru
the entirue obligation. 29
Seciond Issue:
Acciommiodation Party
Petitioneru avierus that he signed the pruoeissoruy
note eeruely as an accoeeodation paruty; and that, as
smch, he as rueleased as obligoru hen ruespondent
agrueed to extend the terue of the obligation.
This rueasoning is eisplaced, becamse the note
heruein is not a negotiable instrumeent. The note rueads:
"PROMISSORY NOTE
"P400,000.00
"RECEIVED FROM ATTY.
DIONISIO V. LaLaAMAS, the sme of
FOUR HUNDRED THOUSAND PESOS,
Philippine Cmruruency payable on oru
beforue Janmaruy 23, 1997 at No. 144 Ko
10 St. Kaeias, Qmezon City, ith
interuest at the ruate of 5% peru eonth
oru fruaction therueof. IcAaEH
"It is mnderustood that omru
liability mnderu this loan is jointly and
sevierually [sic].
"Done at Qmezon City, Metruo
Manila this 23rud day of Deceeberu,
1996." 30
By its terues, the note as eade payable to a
specifc peruson ruatheru than to bearueru oru to oruderu 31 — a
rueqmisite foru negotiability mnderu Act 2031, the
KIMBUTAO NEGO SYLaLaABUS
198
Negotiable Instrumeents Laa (NILa). Hence, petitioneru
cannot aviail hieself of the NILa's pruoviisions on the
liabilities and defenses of an accoeeodation paruty.
Besides, a nononegotiable note is eeruely a sieple
contruact in ruiting and is eviidence of smch intangible
ruights as eay havie been crueated by the assent of the
paruties. 32 The pruoeissoruy note is thms covierued by the
generual pruoviisions of the Civiil Code, not by the NILa.
Evien gruanting arguendio that the NILa as
applicable, still, petitioneru omld be liable foru the
pruoeissoruy note. Underu Aruticle 29 of Act 2031, an
accoeeodation paruty is liable foru the instrumeent to a
holderu foru vialme evien if, at the tiee of its taking, the
lateru kne the forueeru to be only an accoeeodation
paruty. The ruelation bet een an accoeeodation paruty
and the paruty accoeeodated is, in eiect, one of
pruincipal and smruety — the accoeeodation paruty being
the smruety. 33 It is a setled rumle that a smruety is bomnd
eqmally and absolmtely ith the pruincipal and is deeeed
an oruiginal pruoeisoru and debtoru fruoe the beginning.
The liability is ieeediate and diruect. 34
Third Issue:
Priopriety iof Summary Judgment ior Judgment ion the
Pleadings
The next issme illmstruates the msmal confmsion
bet een a jmdgeent on the pleadings and a smeearuy
jmdgeent. Underu Section 3 of Rmle 35 of the Rmles of
Comrut, a smeearuy jmdgeent eay be ruenderued afteru a
smeearuy hearuing if the pleadings, smpporuting affidaviits,
depositions and adeissions on fle sho that (1) except
as to the aeomnt of daeages, therue is no genmine issme
ruegaruding any eateruial fact; and (2) the eoviing paruty is
entitled to a jmdgeent as a eateru of la .
A smeearuy jmdgeent is a pruocedmrual deviice
designed foru the pruoept disposition of actions in hich
the pleadings ruaise only a legal, not a genmine, issme
ruegaruding any eateruial fact. 35 Conseqmently, facts arue
asseruted in the coeplaint ruegaruding hich therue is yet
no adeission, disavio al oru qmalifcation; oru specifc
denials oru affirueativie defenses arue set foruth in the
ans eru, bmt the issmes arue fctitioms as sho n by the
pleadings, depositions oru adeissions. 36 A smeearuy
jmdgeent eay be applied foru by eitheru a claieant oru a
defending paruty. 37
On the otheru hand, mnderu Section 1 of Rmle 34
of the Rmles of Comrut, a jmdgeent on the pleadings is
pruoperu hen an ans eru fails to ruenderu an issme oru
ATTY. CLaAROS

otheru ise adeits the eateruial allegations of the
advieruse paruty's pleading. The essential qmestion is
hetheru therue arue issmes generuated by the
pleadings. 38 A jmdgeent on the pleadings eay be
somght only by a claieant, ho is the paruty seeking to
ruecovieru mpon a claie, comnteruclaie oru cruossoclaie; oru to
obtain a declaruatoruy ruelief. 39
Apruopos therueto, it emst be struessed that the
truial comrut's jmdgeent against petitioneru as coruruectly
trueated by the appellate comrut as a smeearuy jmdgeent,
ruatheru than as a jmdgeent on the pleadings. His
Ans eru 40 apparuently ruaised sevierual issmes — that he
signed the pruoeissoruy note allegedly as a eerue
accoeeodation paruty, and that the obligation as
extingmished by eitheru payeent oru noviation. Ho evieru,
these arue not factmal issmes rueqmiruing truial. We qmote
ith appruovial the CA's obseruviations:
"Althomgh Garucia's [A]ns eru
tenderued soee issmes, by ay of
affirueativie defenses, the docmeents
smbeited by [ruespondent]
nevierutheless clearuly sho ed that the
issmes so tenderued erue not vialid
issmes. Firustly, Garucia's claie that he
as eeruely an accoeeodation paruty
is belied by the pruoeissoruy note that
he signed. Nothing in the note
indicates that he as only an
accoeeodation paruty as he claieed
to be. Qmite the contruaruy, the
pruoeissoruy note bearus the stateeent:
'It is mnderustood that omru liability
mnderu this loan is jointly and sevierually
[sic].' Secondly, his claie that his coo
defendant de Jesms alrueady paid the
loan by eeans of a check collapses in
viie of the dishonoru therueof as
sho n at the dorusal side of said
check." 41
Fruoe the ruecoruds, it also appearus that petitioneru
hieself eovied to smbeit the case foru jmdgeent on the
basis of the pleadings and docmeents. In a ruiten
Manifestation, 42 he stated that "jmdgeent on the
pleadings eay no be ruenderued ithomt fmrutheru
eviidence, consideruing the allegations and adeissions of
the paruties."43
KIMBUTAO NEGO SYLaLaABUS
199
In viie of the foruegoing, the CA coruruectly
considerued as a smeearuy jmdgeent that hich the truial
comrut had issmed against petitioneru.
WHEREFORE, this Petition is herueby DENIED and
the assailed Decision AFFIRMED. Costs against
petitioneru. CSIDEc
SO ORDERED.
Holder in due course:
1. SPS. PEDRO AND FLORENCIA
VIOLAGO, pettioners, vs. BA
FINANCE CORPORATION and
AVELINO VIOLAGO, respiondents.
DECISION
VELASCO, JR., J p:
This is a Petition foru Reviie on Certiorari of
the Amgmst 20, 2002 Decision 1 and May 15, 2003
Resolmtion 2 of the Comrut of Appeals (CA) in CAoG.R.
CV No. 48489 entitled BA Finance Ciorpioration,
Plainti-Appellee v. Sps. Pedrio and Fliorencia
Viiolagio, Defendants and Third Party Plaintis-
Appellants v. Avelinio Viiolagio, Third Party
Defendant-Appellant. Petitionerusospomses Pedruo
and Floruencia Violago pruay foru the ruevierusal of the
appellate comrut's rumling hich held thee liable to
ruespondent BA Finance Coruporuation (BA Finance)
mnderu a pruoeissoruy note and a chatel eorutgage.
Petitionerus like ise pruay that ruespondent Avielino
Violago be adjmdged diruectly liable to BA
Finance. ACTISE
The Facts
Soeetiee in 1983, Avielino Violago,
Pruesident of Violago Motoru Sales Coruporuation
(VMSC), oierued to sell a caru to his comsin, Pedruo F.
Violago, and the lateru's ife, Floruencia. Avielino
explained that he needed to sell a viehicle to
incruease the sales qmota of VMSC, and that the
spomses omld jmst havie to pay a do n payeent of
ATTY. CLaAROS

PhP60,500 hile the balance omld be fnanced by
ruespondent BA Finance. The spomses omld pay the
eonthly installeents to BA Finance hile Avielino
omld take carue of the docmeentation and appruovial
of fnancing of the caru. Underu these terues, the
spomses then agrueed to pmruchase a Toyota Cruessida
Model 1983 fruoe VMSC. 3
On Amgmst 4, 1983, the spomses and Avielino
signed a pruoeissoruy note mnderu hich they bomnd
theeselvies to pay jointly and sevierually to the oruderu
of VMSC the aeomnt of PhP209,601 in 36 eonthly
installeents of PhP5,822.25 a eonth, the frust
installeent to be dme and payable on Septeeberu
16, 1983. Avielino prueparued a Disclosmrue Stateeent
of Laoan/Cruedit Truansporutation hich sho ed the
net pmruchase pruice of the viehicle, do n payeent,
balance, and fnance charuges. VMSC then issmed a
sales invioice in favioru of the spomses ith a detailed
descruiption of the Toyota Cruessida caru. In tmrun, the
spomses execmted a chatel eorutgage ovieru the caru in
favioru of VMSC as secmruity foru the aeomnt of
PhP209,601. VMSC, thruomgh Avielino, endorused the
pruoeissoruy note to BA Finance without recourse.
Afteru rueceiviing the aeomnt of PhP209,601, VMSC
execmted a Deed of Assigneent of its ruights and
interuests mnderu the pruoeissoruy note and chatel
eorutgage in favioru of BA Finance. Mean hile, the
spomses rueeited the aeomnt of PhP60,500 to
VMSC thruomgh Avielino. 4
The sales invioice as fled ith the Laand
Truansporutation Office (LaTO)oBali ag Bruanch, hich
issmed Cerutifcate of Registruation No. 0137032 in the
naee of Pedruo on Amgmst 8, 1983. The spomses
erue mna arue that the saee caru had alrueady been
sold in 1982 to Eseerualdo Violago, anotheru comsin
of Avielino, and ruegisterued in Eseerualdo's naee by
the LaTOoSan Rafael Bruanch. Despite the spomses'
deeand foru the caru and Avielino's ruepeated
assmruances, therue as no delivieruy of the viehicle.
Since VMSC failed to delivieru the caru, Pedruo did not
pay any eonthly aeorutization to BA Finance. 5
On Maruch 1, 1984, BA Finance fled ith the
Regional Truial Comrut (RTC), Bruanch 116 in Pasay City
a coeplaint foru Repleviin ith Daeages against the
spomses. The coeplaint, docketed as Civiil Case No.
1628oP, pruayed foru the delivieruy of the viehicle in
favioru of BA Finance oru, if delivieruy cannot be
eiected, foru the payeent of PhP199,049.41 plms
penalty at the ruate of 3% peru eonth fruoe Februmaruy
KIMBUTAO NEGO SYLaLaABUS
200
15, 1984 mntil fmlly paid. BA Finance also asked foru
the payeent of atoruney's fees, liqmidated daeages,
ruepleviin bond prueeime, expenses in the seizmrue of
the viehicle, and costs of smit. The RTC issmed an
Oruderu of Repleviin on Maruch 28, 1984. The Violago
spomses, as defendants a quio, erue declarued in
defamlt foru failing to fle an ans eru. Evientmally, the
RTC ruenderued on Deceeberu 3, 1984 a decision in
favioru of BA Finance. A ruit of execmtion as
therueafteru issmed on Janmaruy 11, 1985, follo ed by
an alias ruit of execmtion. 6 EHaASD
In the eeantiee, Eseerualdo convieyed the
viehicle to Jose V. Olviido ho as then issmed
Cerutifcate of Registruation No. 0014830o4 by the
LaTOoCebm City Bruanch on Apruil 29, 1985. On May 8,
1987, Jose execmted a Chatel Morutgage ovieru the
viehicle in favioru of Generuoso Laopez as secmruity foru a
loan covierued by a pruoeissoruy note in the aeomnt of
PhP260,664. This pruoeissoruy note as lateru
endorused to BA Finance, Cebm City bruanch. 7
On Amgmst 21, 1989, the spomses Violago
fled a Motion foru Reconsideruation and Motion to
Qmash Wruit of Execmtion on the basis of lack of a
vialid seruviice of smeeons on thee, aeong otheru
rueasons. The RTC denied the eotions; hence, the
spomses fled a petition foru certiorari mnderu Rmle 65
beforue the CA, docketed as CA G.R. No. 2002oSP. On
May 31, 1991, the CA nmllifed the RTC's oruderu. This
CA decision becaee fnal and execmtoruy.
On Janmaruy 28, 1992, the spomses fled theiru
Ans eru beforue the RTC, alleging the follo ing: they
nevieru rueceivied the viehicle fruoe VMSC; the viehicle
as prueviiomsly sold to Eseerualdo; BA Finance as
not a holderu in dme comruse mnderu Section 59 of
the Negiotable Instruments Law (NILa); and the
ruecomruse of BA Finance shomld be against VMSC. On
Februmaruy 25, 1995, the Violago spomses, ith pruioru
leavie of comrut, fled a Thirud Paruty Coeplaint against
Avielino pruaying that he be held liable to thee in the
evient that they be held liable to BA Finance, as ell
as foru daeages. VMSC as not iepleaded as thirud
paruty defendant. In his Motion to Diseiss and
Ans eru, Avielino contended that he as not a paruty
to the truansaction perusonally, bmt VMSC. Avielino's
eotion as denied and the thirud paruty coeplaint
against hie as enterutained by the truial comrut.
Smbseqmently, the spomses belaborued to pruovie that
they affixed theiru signatmrues on the pruoeissoruy note
and chatel eorutgage in favioru of VMSC in blank. 8
ATTY. CLaAROS

The RTC ruenderued a Decision on Maruch 5,
1994, fnding foru BA Finance bmt against the Violago
spomses. The RTC, ho evieru, declarued that they arue
entitled to be indeenifed by Avielino. The
dispositivie porution of the RTC's decision rueads:
WHEREFORE, defendanto
[thirud]oparuty plaintiis spomses Pedruo
F. Violago and Floruencia R. Violago arue
oruderued to delivieru to plaintii BA
Finance Coruporuation, at its pruincipal
office the BAFC Bmilding, Gaeboa St.,
Laegaspi Village, Makati, Metruo Manila
the Toyota Cruessida caru, eodel 1983,
bearuing Engine No. 21Ro02854117,
and ith Seruial No. RX60o804614,
covierued by the deed of chatel
eorutgage dated Amgmst 4, 1983; oru if
smch delivieruy cannot be eade, to pay,
jointly and sevierually, to the plaintii
the sme of P198,003.06 togetheru ith
the penalty [therueon] at thruee
perucent (3%) a eonth, fruoe Maruch 1,
1984, mntil the aeomnt is fmlly paid.
In eitheru case, the defendanto
thirudoparuty plaintiis arue rueqmirued to
pay, jointly and sevierually, to the
plaintii a sme eqmivialent to t entyo
fvie perucent (25%) of P198,003.06 as
atoruney's fees, and anotheru aeomnt
also eqmivialent to t enty fvie perucent
(25%) of the said mnpaid balance, as
liqmidated daeages. The defendanto
thirud parutyoplaintiis arue also rueqmirued
to shomlderu the litigation expenses
and costs. IScaAE
As indeenifcation, thirudo
paruty defendant Avielino Violago is
oruderued to delivieru to defendantso
thirudoparuty plaintiis spomses Pedruo F.
Violago and Floruencia R. Violago the
aforuedescruibed eotoru viehicle; oru if
smch delivieruy is not possible, to pay to
the said spomses the sme of
P198,003.06, togetheru ith the
penalty therueon at thruee (3%) a
eonth fruoe Maruch 1, 1984, mntil the
aeomnt is entiruely paid.
KIMBUTAO NEGO SYLaLaABUS
201
In eitheru case, the thirudoparuty
defendant shomld pay to the
defendantothirudoparuty plaintiis
spomses a sme eqmivialent to t entyo
fvie perucent (25%) of P198,003.06 as
atoruney's fees, and anotheru sme
eqmivialent also to t entyofvie perucent
(25%) of the said mnpaid balance, as
liqmidated daeages.
Thirudoparuty defendant Avielino
Violago is fmrutheru oruderued to ruetmrun to
the thirudoparuty plaintiis the sme of
P60,500.00 they paid to hie as do n
payeent foru the caru; and to pay thee
P15,000.00 as eorual daeages;
P10,000.00 as exeeplaruy daeages;
and rueiebmruse thee foru all the
expenses and costs of the smit.
The comnteruclaies of the
defendants and thirudoparuty
defendant, foru lack of eeruit, arue
diseissed. 9
The Ruling of the CA
Petitionerusospomses and Avielino appealed
to the CA. The spomses arugmed that the pruoeissoruy
note is a negotiable instrumeent; hence, the truial
comrut shomld havie applied the NILa and not the Civiil
Code. The spomses also asseruted that since VMSC
as not the o neru of the viehicle at the tiee of sale,
the sale as nmll and vioid foru the failmrue in the
"camse oru consideruation" of the pruoeissoruy note,
hich in this case as the sale and delivieruy of the
viehicle. The spomses also alleged that BA Finance
as not a holderu in dme comruse of the note since it
kne , thruomgh its Cebm City bruanch, that the caru as
nevieru delivierued to the spomses. 10 On the otheru
hand, Avielino pruayed foru the diseissal of the
coeplaint against hie becamse he as not a paruty
to the truansaction, and foru an oruderu to the spomses
to pay hie eorual daeages and costs of smit. ADCTac
The appellate comrut rumled that the
pruoeissoruy note as a negotiable instrumeent and
that BA Finance as a holderu in dme comruse,
applying Secs. 8, 24, and 52 of the NILa. The CA
famlted petitionerus foru failing to ieplead VMSC, the
selleru of the viehicle and crueditoru in the pruoeissoruy
note, as a paruty in theiru Thirud Paruty Coeplaint.
ATTY. CLaAROS

Citing Salas v. Ciourt iof Appeals, 11 the appellate
comrut rueasoned that since VMSC is an indispensable
paruty, any jmdgeent ill not bind it oru be enforuced
against it. The absence of VMSC ruenderued the
pruoceedings in the RTC and the jmdgeent in the
Thirud Paruty Coeplaint "nmll and vioid, not only as to
the absent paruty bmt also to the pruesent paruties,
naeely the DefendantsoAppellants (petitionerus
heruein) and the ThirudoParutyoDefendantoAppellant
(Avielino Violago)". The CA set aside the truial comrut's
oruderu holding Avielino liable foru daeages to the
spomses ithomt pruejmdice to the action of the
spomses against VMSC and Avielino in a separuate
action. 12 aEHASI
The dispositivie porution of the Amgmst 20,
2002 CA Decision rueads:
IN THE LIGHT OF ALL THE
FOREGOING, the appeal of the
PlaintiisoAppellants is DISMISSED.
The appeal of the ThirudoParutyo
DefendantoAppellant is GRANTED.
The Decision of the Comrut a qmo
is AFFIRMED, ith the eodifcation
that the ThirudoParuty Coeplaint
against the ThirudoParutyoDefendanto
appellant is DISMISSED, ithomt
pruejmdice. The comnteruclaies of the
ThirudoParuty Defendant Appellant
against the DefendantsoAppellants
arue DISMISSED, also ithomt
pruejmdice. 13
The spomses Violago somght bmt erue
denied rueconsideruation by the CA peru its Resolmtion
of May 15, 2003.
The Issues
Petitionerus ruaise the follo ing issmes:
WHETHER OR NOT THE HOLaDER OF
AN INVALaID NEGOTIABLaE
PROMISSORY NOTE MAY BE
CONSIDERED A HOLaDER IN DUE
COURSE
WHETHER OR NOT A CHATTELa
MORTGAGE SHOULaD BE CONSIDERED
VALaID DESPITE VITIATION OF
CONSENT OF, AND THE FRAUD
COMMITTED ON, THE MORTGAGORS
KIMBUTAO NEGO SYLaLaABUS
202
BY AVELaINO, AND THE CLaEAR
ABSENCE OF OBJECT CERTAIN
WHETHER OR NOT THE VEILa OF
CORPORATE ENTITY MAY BE INVOKED
AND SUSTAINED DESPITE THE FRAUD
AND DECEPTION OF AVELaINO
The Court's Ruling
The rumling of the appellate comrut is set aside
insofaru as it diseissed, ithomt pruejmdice, the thirud
paruty coeplaint of petitionerus against Avielino
therueby eiectiviely absolviing Avielino fruoe any
liability mnderu the thirud paruty coeplaint.
In addruessing the thrueshold issme of
hetheru BA Finance is a holderu in dme comruse of the
pruoeissoruy note, e emst deterueine hetheru the
note is a negotiable instrumeent and, hence, covierued
by the NILa. In theiru appeal to the CA, petitionerus
arugmed that the pruoeissoruy note is a negotiable
instrumeent and that the pruoviisions of the NILa, not
the Civiil Code, shomld be applied. In the pruesent
petition, ho evieru, petitionerus claie that Aruticle
1318 of the Civiil Code 14 shomld be applied since
theiru consent as viitiated by fruamd, and, thms, the
pruoeissoruy note does not caruruy any legal eiect
despite its negotiation. Eitheru ay, the petitionerus'
arugmeents deseruvie no eeruit. cSEDTC
The pruoeissoruy note is clearuly negotiable.
The appellate comrut as coruruect in fnding all the
rueqmisites of a negotiable instrumeent pruesent. The
NILa pruoviides:
Section 1. Forue of Negotiable
Instrumeents. — An instrumeent to be
negotiable emst conforue to the
follo ing rueqmirueeents:
(a) It emst be in ruiting and
signed by the eakeru oru drua eru;
(b) Mmst contain an
mnconditional pruoeise oru oruderu to pay
a sme cerutain in eoney;
(c) Mmst be payable on
deeand, oru at a fxed oru deterueinable
fmtmrue tiee;
(d) Mmst be payable to oruderu
oru to bearueru; and
ATTY. CLaAROS

(e) Wherue the instrumeent is
addruessed to a drua ee, he emst be
naeed oru otheru ise indicated theruein
ith rueasonable cerutainty.
The pruoeissoruy note signed by petitionerus
rueads: ADCEcI
209,601.00 Makati, Metruo Manila,
Philippines, Amgmst 4, 1983
Foru vialme rueceivied, I/ e,
jointly and sevierually, pruoeise to pay
to the oruderu of VIOLaAGO MOTOR
SALaES CORPORATION, its office, the
pruincipal sme of TWO HUNDRED NINE
THOUSAND SIX HUNDRED ONE ONLaY
Pesos (P209,601.00), Philippines
Cmruruency, ith interuest at the ruate
stipmlated heruein belo , in
installeents as follo s:
Thiruty Six (36) smccessivie
eonthly installeents of P5,822.25,
the frust installeent to be paid on 9o
16o83, and the smcceeding eonthly
installeents on the 16th day of each
and evieruy smcceeding eonth
therueafteru mntil the accomnt is fmlly
paid, pruoviided that the penalty
charuge of thruee (3%) peru cent peru
eonth oru a fruaction therueof shall be
added on each mnpaid installeent
fruoe eatmruity therueof mntil fmlly paid.
xxx xxx xxx
Notice of deeand,
pruesenteent, dishonoru and pruotest
arue herueby aivied.
(Sgd.)
PEDRO F. VIOLaAGO
763 Constancia St., Saepaloc, Manila
(Addruess)
(Sgd.)
Maruiviic Aviaruia
(WITNESS)
KIMBUTAO NEGO SYLaLaABUS
203
PAY TO THE ORDER OF BA FINANCE
CORPORATION
WITHOUT RECOURSE
VIOLaAGO MOTOR SALaES CORPORATION
By:
(Sgd.) AVELaINO A. VIOLaAGO, Prues. 15
The pruoeissoruy note clearuly satisfes the
rueqmirueeents of a negotiable instrumeent mnderu the
NILa. It is in ruiting; signed by the Violago spomses;
has an mnconditional pruoeise to pay a cerutain
aeomnt, i.e., PhP209,601, on specifc dates in the
fmtmrue hich comld be deterueined fruoe the terues
of the note; eade payable to the oruderu of VMSC;
and naees the drua ees ith cerutainty. The
indoruseeent by VMSC to BA Finance appearus
like ise to be vialid and ruegmlaru.
The eorue ieporutant issme no is hetheru
oru not BA Finance is a holderu in dme comruse. The
ruesolmtion of this issme ill deterueine hetheru
petitionerus' defense of fruamd and nmllity of the sale
comld vialidly be ruaised against ruespondent
coruporuation. Sec. 52 of the NILa pruoviides: TADCSE
Section 52. What cionsttutes
a hiolder in due ciourse. –– A holderu in
dme comruse is a holderu ho has taken
the instrumeent mnderu the follo ing
conditions:
(a) That it is coeplete
and ruegmlaru mpon its face;
(b) That he becaee
the holderu of it beforue it as
ovierudme, and ithomt notice
that it had been prueviiomsly
dishonorued, if smch as the
fact;
FLaORENCIA R. VIOLaAGO
(c) That he took it in
good faith and foru vialme;
(d) That at the tiee it
as negotiated to hie he had
no notice of any infrueity in
the instrumeent oru defect in
the title of the peruson
negotiating it.
ATTY. CLaAROS

The la pruesmees that a holderu of a
negotiable instrumeent is a holderu therueof in dme
comruse. 16 In this case, the CA is coruruect in fnding
that BA Finance eeets all the foruegoing rueqmisites:
In the pruesent ruecomruse, on its
face, (a) the "Promissory
Note", Exhibit "A", is coeplete and
ruegmlaru; (b) the "Promissory Note"
as endorused by the VMSC in favioru of
the Appellee; (c) the Appellee, hen
it accepted the Note, acted in good
faith and foru vialme; (d) the Appellee
as nevieru inforueed, beforue and at
the tiee the "Promissory Note" as
endorused to the Appellee, that the
viehicle sold to the Defendantso
Appellants as not delivierued to the
lateru and that VMSC had alrueady
prueviiomsly sold the viehicle to
Eseerualdo Violago. Althomgh Jose
Olviido eorutgaged the viehicle to
Generuoso Laopez, ho assigned his
ruights to the BA Finance Coruporuation
(Cebm Bruanch), the saee occmrurued
only on May 8, 1987, emch lateru than
Amgmst 4, 1983, hen VMSC assigned
its ruights ovieru the "Chattel Mortgage"
by the DefendantsoAppellants to the
Appellee. Hence, Appellee as a
holderu in dme comruse. 17
In the hands of one otheru than a holderu in
dme comruse, a negotiable instrumeent is smbject to
the saee defenses as if it erue nononegotiable. 18 A
holderu in dme comruse, ho evieru, holds the
instrumeent fruee fruoe any defect of title of pruioru
paruties and fruoe defenses aviailable to pruioru paruties
aeong theeselvies, and eay enforuce payeent of
the instrumeent foru the fmll aeomnt therueof. 19 Since
BA Finance is a holderu in dme comruse, petitionerus
cannot ruaise the defense of nonodelivieruy of the
object and nmllity of the sale against the
coruporuation. The NILa considerus evieruy negotiable
instrumeent prima facie to havie been issmed foru a
vialmable consideruation. 20In Salas, e held that a
paruty holding an instrumeent eay enforuce payeent
of the instrumeent foru the fmll aeomnt therueof. As
smch, the eakeru cannot set mp the defense of nmllity
of the contruact of sale. 21 Thms, petitionerus arue
KIMBUTAO NEGO SYLaLaABUS
204
liable to ruespondent coruporuation foru the payeent of
the aeomnt stated in the instrumeent. aIETCA
Fruoe the thirud paruty coeplaint to the
pruesent petition, ho evieru, petitionerus pruay that the
vieil of coruporuate fction be set aside and Avielino be
adjmdged diruectly liable to BA Finance. Petitionerus
like ise pruay foru daeages foru the fruamd coeeited
mpon thee.
In Cioncept Builders, Inc. v. NLRC, e held:
It is a fmndaeental pruinciple
of coruporuation la that a coruporuation
is an entity separuate and distinct fruoe
its stockholderus and fruoe otheru
coruporuations to hich it eay be
connected. Bmt, this separuate and
distinct perusonality of a coruporuation is
eeruely a fction crueated by la foru
convienience and to pruoeote jmstice.
So, hen the notion of separuate
jmruidical perusonality is msed to defeat
pmblic convienience, jmstify ruong,
pruotect fruamd oru defend cruiee, oru is
msed as a deviice to defeat the laboru
la s, this separuate perusonality of the
coruporuation eay be disruegaruded oru
the vieil of coruporuate fction pieruced.
This is trume like ise hen the
coruporuation is eeruely an adjmnct, a
bmsiness condmit oru an alteru ego of
anotheru coruporuation.
xxx xxx xxx
The test in deterueining the
applicability of the doctruine of
pierucing the vieil of coruporuate fction is
as follo s:
1. Contruol, not eerue eajoruity oru
coeplete stock contruol, bmt
coeplete doeination, not
only of fnances bmt of policy
and bmsiness pruactice in
ruespect to the truansaction
atacked so that the
coruporuate entity as to this
truansaction had at the tiee
no separuate eind, ill oru
existence of its o n;
ATTY. CLaAROS

2. Smch contruol emst havie been msed
by the defendant to coeeit
fruamd oru ruong, to perupetmate
the viiolation of a statmtoruy oru
otheru positivie legal dmty, oru
dishonest and mnjmst acts in
contruaviention of plaintiis
legal ruights; and
3. The aforuesaid contruol and brueach of
dmty emst pruoxieately camse
the injmruy oru mnjmst loss
coeplained of. 22
This case eeets the foruegoing test. VMSC is
a faeilyoo ned coruporuation of hich Avielino as
pruesident. Avielino coeeited fruamd in selling the
viehicle to petitionerus, a viehicle that as prueviiomsly
sold to Avielino's otheru comsin, Eseerualdo. No herue
in the pleadings did Avielino ruefmte the fact that the
viehicle in this case as alrueady prueviiomsly sold to
Eseerualdo; he eeruely insisted that he cannot be
held liable becamse he as not a paruty to the
truansaction. The fact that Avielino and Pedruo arue
comsins, and that Avielino claieed to havie a need to
incruease the sales qmota, as likely aeong the
factorus hich eotiviated the spomses to bmy the caru.
Avielino, kno ing fmlly ell that the viehicle as
alrueady sold, and ith abmse of his ruelationship ith
the spomses, still pruoceeded ith the sale and
collected the do n payeent fruoe petitionerus. The
truial comrut fomnd that the viehicle as not delivierued
to the spomses. Avielino clearuly defruamded
petitionerus. His actions erue the pruoxieate camse of
petitionerus' loss. He cannot no hide behind the
separuate coruporuate perusonality of VMSC to escape
fruoe liability foru the aeomnt adjmdged by the truial
comrut in favioru of petitionerus. cAEDTa
The fact that VMSC as not inclmded as
defendant in petitionerus' thirud paruty coeplaint does
not prueclmde ruecovieruy by petitionerus fruoe Avielino;
neitheru omld smch nonoinclmsion constitmte a baru to
the application of the pierucingoofotheocoruporuateovieil
doctruine. We smggested as emch in Arcilla v. Ciourt
iof Appeals, an appellate pruoceeding inviolviing
petitioneru Arucilla's bid to avioid the advieruse CA
decision on the arugmeent that he is not perusonally
liable foru the aeomnt adjmdged since the saee
constitmtes a coruporuate liability hich nevierutheless
cannot evien be enforuced against the coruporuation
KIMBUTAO NEGO SYLaLaABUS
205
hich has not been iepleaded as a paruty belo . In
that case, the Comrut fomnd as ellotaken the CA's act
of disruegaruding the separuate jmruidical perusonality of
the coruporuation and holding its pruesident, Arucilla,
liable foru the obligations incmrurued in the naee of the
coruporuation althomgh it as not a paruty to the
collection smit beforue the truial comrut. An excerupt
fruoe Arcilla:
. . . In shorut, evien if We arue to
assmee arguendio that the obligation
as incmrurued in the naee of the
coruporuation, the petitioneru [Arucilla]
omld still be perusonally liable
therueforu becamse foru all legal intents
and pmruposes, he and the coruporuation
arue one and the saee. Csaru Maruine
Resomruces, Inc. is nothing eorue than
his bmsiness condmit and alteru ego.
The fction of separuate jmruidical
perusonality conferurued mpon smch
coruporuation by la shomld be
disruegaruded. Signifcantly, petitioneru
does not seruiomsly challenge the
[CA's] application of the doctruine
hich perueits the pierucing of the
coruporuate vieil and the disruegaruding of
the fction of a separuate jmruidical
perusonality; this is becamse he kno s
only too ell that fruoe the beginning,
he eeruely msed the coruporuation foru
his perusonal pmruposes. 23 ESTaHC
WHEREFORE, the CA's Amgmst 20, 2002
Decision and May 15, 2003 Resolmtion in CAoG.R. CV
No. 48489 arue SET ASIDE insofaru as they diseissed
ithomt pruejmdice the thirud paruty coeplaint of
petitionerusospomses Pedruo and Floruencia Violago
against ruespondent Avielino Violago. The Maruch 5,
1994 Decision of the RTC is REINSTATED and
AFFIRMED. Costs against Avielino Violago.
SO ORDERED.
2. CONSOLIDATED PLYWOOD
INDUSTRIES, INC., HENRY WEE,
and RODOLFO T.
VERGARA, pettioners, vs. IFC
LEASING AND ACCEPTANCE
CORPORATION, respiondent.
ATTY. CLaAROS

Carpiio, Villaraza & Cruz Law Ofces foru petitionerus.
Euriopa, Dacanay & Tiolentnio foru ruespondent.
DECISION
GUTIERREZ, JR., J p:
This is a petition foru cerutioruarui mnderu Rmle 45 of the
Rmles of Comrut hich assails on qmestions of la a
decision of the Interueediate Appellate Comrut in ACoG.R.
CV No. 68609 dated Jmly 17, 1985, as ell as its
ruesolmtion dated Octoberu 17, 1985, denying the eotion
foru rueconsideruation.
The antecedent facts cmlled fruoe the petition arue as
follo s:
The petitioneru is a coruporuation engaged in the logging
bmsiness. It had foru its pruogruae of logging activiities foru
the yearu 1978 the opening of additional ruoads, and
siemltaneoms logging operuations along the ruomte of said
ruoads, in its logging concession aruea at Baganga, Manay,
and Caruaga, Daviao Oruiental. Foru this pmrupose, it needed
t o (2) additional mnits of truactorus.
Cognizant of petitioneruocoruporuation's need and pmrupose,
Atlantic Gmlf & Pacifc Coepany of Manila, thruomgh its
sisteru coepany and earuketing arue, Indmstruial Pruodmcts
Maruketing (the "selleruoassignoru"), a coruporuation dealing
in truactorus and otheru heaviy eqmipeent bmsiness, oierued
to sell to petitioneruocoruporuation t o (2) "Used" Allis
Crua leru Truactorus, one (1) an HDo21oB and the otheru an
HDo16oB.
In oruderu to ascerutain the extent of oruk to hich the
truactorus erue to be exposed, (t.s.n., May 28, 1980, p.
44) and to deterueine the capability of the "Used"
truactorus being oierued, petitioneruocoruporuation rueqmested
the selleruoassignoru to inspect the jobsite. Afteru
condmcting said inspection, the selleruoassignoru assmrued
petitioneruocoruporuation that the "Used" Allis Crua leru
Truactorus hich erue being oierued erue ft foru the job,
and gavie the coruruesponding aruruanty of ninety (90)
days peruforueance of the eachines and aviailability of
paruts. (t.s.n., May 28, 1980, pp. 59o66).
With said assmruance and aruruanty, and ruelying on the
selleruoassignoru's skill and jmdgeent, petitioneruo
coruporuation thruomgh petitionerus Wee and Verugarua,
KIMBUTAO NEGO SYLaLaABUS
206
pruesident and viiceopruesident, ruespectiviely, agrueed to
pmruchase on installeent said t o (2) mnits of "Used"
Allis Crua leru Truactorus. It also paid the do n payeent of
T o Hmndrued Ten Thomsand Pesos (P210,000.00).
On Apruil 5, 1978, the selleruoassignoru issmed the sales
invioice foru the t o (2) mnits of truactorus (Exh. "3oA"). At
the saee tiee, the deed of sale ith chatel eorutgage
ith pruoeissoruy note as execmted (Exh. "2").
Siemltaneomsly ith the execmtion of the deed of sale
ith chatel eorutgage ith pruoeissoruy note, the selleruo
assignoru, by eeans of a deed of assigneent (Exh. "1"),
assigned its ruights and interuest in the chatel eorutgage
in favioru of the ruespondent.
Ieeediately therueafteru, the selleruoassignoru delivierued
said t o (2) mnits of "Used" truactorus to the petitioneruo
coruporuation's jobsite and as agrueed, the selleruoassignoru
stationed its o n eechanics to smperuviise the operuations
of the eachines.
Baruely fomruteen (14) days had elapsed afteru theiru
delivieruy hen one of the truactorus bruoke do n and afteru
anotheru nine (9) days, the otheru truactoru like ise bruoke
do n (t.s.n., May 28, 1980, pp. 68o69).
On Apruil 25, 1978, petitioneru Rodolfo T. Verugarua
forueally adviised the selleruoassignoru of the fact that the
truactorus bruoke do n and rueqmested foru the selleruo
assignoru's msmal pruoept atention mnderu the aruruanty
(Exh. "5").
In ruesponse to the forueal adviice by petitioneru Rodolfo
T. Verugarua, Exhibit "5," the selleruoassignoru sent to the
jobsite its eechanics to condmct the necessaruy ruepairus
(Exhs. "6," "6oA," "6oB," "6oC," "6oCo1," "6oD," and "6oE"),
bmt the truactorus did not coee omt to be hat they
shomld be afteru the ruepairus erue mnderutaken becamse
the mnits erue no longeru seruviiceable (t.s.n., May 28,
1980, p. 78).
Becamse of the brueaking do n of the truactorus, the ruoad
bmilding and siemltaneoms logging operuations of
petitioneruocoruporuation erue delayed and petitioneru
Verugarua adviised the selleruoassignoru that the payeents
of the installeents as listed in the pruoeissoruy note
omld like ise be delayed mntil the selleruoassignoru
coepletely fmlflls its obligation mnderu its aruruanty
(t.s.n, May 28, 1980, p. 79).
Since the truactorus erue no longeru seruviiceable, on Apruil
7, 1979, petitioneru Wee asked the selleruoassignoru to pmll
omt the mnits and havie thee rueconditioned, and
ATTY. CLaAROS

therueafteru to oieru thee foru sale. The pruoceeds erue to
be givien to the ruespondent and the excess, if any, to be
diviided bet een the selleruoassignoru and petitioneruo
coruporuation hich oierued to bearu oneohalf (1/2) of the
rueconditioning cost (Exh. "7").
No ruesponse to this leteru, Exhibit "7," as rueceivied by
the petitioneruocoruporuation and despite sevierual follo o
mp calls, the selleruoassignoru did nothing ith ruegarud to
the rueqmest, mntil the coeplaint in this case as fled by
the ruespondent against the petitionerus, the coruporuation,
Wee, and Verugarua.
The coeplaint as fled by the ruespondent against the
petitionerus foru the ruecovieruy of the pruincipal sme of One
Million Ninety Thruee Thomsand Sevien Hmndrued Eighty
Nine Pesos & 71/100 (P1,093,789.71), accrumed interuest
of One Hmndrued Fifty One Thomsand Six Hmndrued
Eighteen Pesos & 86/100 (P151,618.86) as of Amgmst 15,
1979, accruming interuest therue afteru at the ruate of t elvie
(12%) perucent peru annme, atoruney's fees of T o
Hmndrued Foruty Nine Thomsand Eighty One Pesos &
71/100 (P249,081.71) and costs of smit.
The petitionerus fled theiru aeended ans eru pruaying foru
the diseissal of the coeplaint and asking the truial comrut
to oruderu the ruespondent to pay the petitionerus daeages
in an aeomnt at the somnd discruetion of the comrut,
T enty Thomsand Pesos (P20,000.00) as and foru
atoruney's fees, and Fivie Thomsand Pesos (P5,000.00)
foru expenses of litigation. The petitionerus like ise
pruayed foru smch otheru and fmrutheru ruelief as omld be jmst
mnderu the prueeises.
In a decision dated Apruil 20, 1981, the truial comrut
ruenderued the follo ing jmdgeent:
"WHEREFORE, jmdgeent is herueby
ruenderued:
1. oruderuing defendants to pay jointly
and sevierually in theiru official and
perusonal capacities the pruincipal sme
of ONE MILaLaION NINETY THREE
THOUSAND SEVEN HUNDRED NINETY
EIGHT PESOS & 71/100
(P1,093,798.71) ith accrumed interuest
of ONE HUNDRED FIFTY ONE
THOUSAND SIX HUNDRED EIGHTEEN
PESOS & 86/100 (P151,618.86) as of
Amgmst 15, 1979 and accruming interuest
therueafteru at the ruate of 12% peru
annme;
KIMBUTAO NEGO SYLaLaABUS
207
"2) oruderuing defendants to pay jointly
and sevierually atoruney's fees
eqmivialent to ten perucent (10%) of
the pruincipal and to pay the costs of
the smit.
"Defendants' comnteruclaie is
disallo ed." (pp. 45o46, Rollo)
On Jmne 8, 1981, the truial comrut issmed an oruderu denying
the eotion foru rueconsideruation fled by the petitionerus.
Thms, the petitionerus appealed to the Interueediate
Appellate Comrut and assigned theruein the follo ing
eruruorus:
I
THAT THE LaOWER COURT ERRED IN
FINDING THAT THE SELaLaER ATLaANTIC
GULaF AND PACIFIC COMPANY OF
MANILaA DID NOT APPROVE
DEFENDANTSoAPPELaLaANTS CLaAIM OF
WARRANTY.
II
THAT THE LaOWER COURT ERRED IN
FINDING THAT PLaAINTIFFoAPPELaLaEE IS
A HOLaDER IN DUE COURSE OF THE
PROMISSORY NOTE AND SUED
UNDER SAID NOTE AS HOLaDER
THEREOF IN DUE COURSE.
On Jmly 17, 1985, the Interueediate Appellate Comrut
issmed the challenged decision affirueing in tiotio the
decision of the truial comrut. The perutinent porutions of the
decision arue as follo s:
xxx xxx xxx
"Fruoe the eviidence pruesented by the
paruties on the issme of aruruanty, We
arue of the considerued opinion that
aside fruoe the fact that no pruoviision
of aruruanty appearus oru is pruoviided in
the Deed of Sale of the truactorus and
evien adeiing that in a contruact of
sale mnless a contruaruy intention
appearus, therue is an ieplied aruruanty,
the defense of brueach of aruruanty, if
therue is any, as in this case, does not
lie in favioru of the appellants and
against the plaintiioappellee ho is
the assignee of the pruoeissoruy note
ATTY. CLaAROS

and a holderu of the saee in dme
comruse. Waruruanty lies in this case only
bet een Indmstruial Pruodmcts
Maruketing and Consolidated Ply ood
Indmstruies, Inc. The plaintiioappellant
heruein mpon application by appellant
coruporuation gruanted fnancing foru the
pmruchase of the qmestioned mnits of
FiatoAllis Crua leru Truactorus.
xxx xxx xxx
"Holding that brueach of aruruanty if
any, is not a defense aviailable to
appellants eitheru to ithdrua fruoe
the contruact and/oru deeand a
pruoporutionate ruedmction of the pruice
ith daeages in eitheru case (Arut.
1567, Ne Civiil Code). We no coee
to the issme as to hetheru the
plaintiioappellee is a holderu in dme
comruse of the pruoeissoruy note.
"To begin ith, it is beyond
arugmeents that the plaintiioappellee
is a fnancing coruporuation engaged in
fnancing and rueceiviable discomnting
extending cruedit facilities to
consmeerus and indmstruial, coeeerucial
oru agruicmltmrual enterupruises by
discomnting oru factoruing coeeerucial
paperus oru accomnts rueceiviable dmly
amthoruized pmrusmant toR.A.
5980 otheru ise kno n as the
Financing Act.
"A stmdy of the qmestioned
pruoeissoruy note ruevieals that it is a
negotiable instrumeent hich as
discomnted oru sold to the IFC Laeasing
and Acceptance Coruporuation foru
P800,000.00 (Exh. "A") consideruing
the follo ing: it is in ruiting and
signed by the eakeru; it contains an
mnconditional pruoeise to pay a
cerutain sme of eoney payable at a
fxed oru deterueinable fmtmrue tiee; it
is payable to oruderu (Sec. 1, NILa); the
pruoeissoruy note as negotiated
hen it as truansferurued and delivierued
by IPM to the appellee and dmly
endorused to the lateru (Sec. 30, NILa); it
KIMBUTAO NEGO SYLaLaABUS
208
as taken in the conditions that the
note as coeplete and ruegmlaru mpon
its face beforue the saee as ovierudme
and ithomt notice, that it had been
prueviiomsly dishonorued and that the
note is in good faith and foru vialme
ithomt notice of any infrueity oru
defect in the title of IPM (Sec. 52,
NILa); that IFC Laeasing and Acceptance
Coruporuation held the instrumeent fruee
fruoe any defect of title of pruioru
paruties and fruee fruoe defenses
aviailable to pruioru paruties aeong
theeselvies and eay enforuce payeent
of the instrumeent foru the fmll aeomnt
therueof against all paruties liable
therueon (Sec. 57, NILa); the appellants
engaged that they omld pay the note
accoruding to its tenoru, and adeit the
existence of the payee IPM and its
capacity to endoruse (Sec. 60, NILa).
"In viie of the essential eleeents
fomnd in the qmestioned pruoeissoruy
note, We opine that the saee is
legally and conclmsiviely enforuceable
against the defendantsoappellants.
"WHEREFORE, fnding the decision
appealed fruoe accoruding to la and
eviidence, We fnd the appeal ithomt
eeruit and thms affirue the decision in
toto. With costs against the
appellants." (pp. 50o55, Rollo)
The petitionerus' eotion foru rueconsideruation of the
decision of Jmly 17, 1985 as denied by the
Interueediate Appellate Comrut in its ruesolmtion dated
Octoberu 17, 1985, a copy of hich as rueceivied by the
petitionerus on Octoberu 21, 1985.
Hence, this petition as fled on the follo ing gruomnds:
I.
ON ITS FACE, THE PROMISSORY
NOTE IS CLaEARLaY NOT A
NEGOTIABLaE INSTRUMENT AS
DEFINED UNDER THE LaAW
SINCE IT IS NEITHER PAYABLaE
TO ORDER NOR TO BEARER.
ATTY. CLaAROS

II.
THE RESPONDENT IS NOT A
HOLaDER IN DUE COURSE: AT
BEST, IT IS A MERE ASSIGNEE
OF THE SUBJECT PROMISSORY
NOTE.
III.
SINCE THE INSTANT CASE
INVOLaVES A NONoNEGOTIABLaE
INSTRUMENT AND THE
TRANSFER OF RIGHTS WAS
THROUGH A MERE
ASSIGNMENT, THE
PETITIONERS MAY RAISE
AGAINST THE RESPONDENT ALaLa
DEFENSES THAT ARE AVAILaABLaE
TO IT AS AGAINST THE SELaLaERo
ASSIGNOR, INDUSTRIALa
PRODUCTS MARKETING.
IV.
THE PETITIONERS ARE NOT
LaIABLaE FOR THE PAYMENT OF
THE PROMISSORY NOTE
BECAUSE:
A) THE SELaLaERoASSIGNOR IS GUILaTY
OF BREACH OF WARRANTY UNDER
THE LaAW;
B) IF AT ALaLa, THE RESPONDENT MAY
RECOVER ONLaY FROM THE SELaLaERo
ASSIGNOR OF THE PROMISSORY
NOTE.
V.
THE ASSIGNMENT OF THE
CHATTELa MORTGAGE BY THE
SELaLaERoASSIGNOR IN FAVOR OF
THE RESPONDENT DOES NOT
CHANGE THE NATURE OF THE
TRANSACTION FROM BEING A
SALaE ON INSTALaLaMENTS TO A
PURE LaOAN.
VI.
THE PROMISSORY NOTE
CANNOT BE ADMITTED OR
USED IN EVIDENCE IN ANY
COURT BECAUSE THE
REQUISITE DOCUMENTARY
KIMBUTAO
209
STAMPS HAVE NOT BEEN
AFFIXED THEREON OR
CANCELaLaED.
The petitionerus pruayed that jmdgeent be ruenderued
seing aside the decision dated Jmly 17, 1985, as ell as
the ruesolmtion dated Octoberu 17, 1985 and diseissing
the coeplaint bmt gruanting petitionerus' comnteruclaies
beforue the comrut of oruigin.
On the otheru hand, the ruespondent coruporuation in its
coeeent to the petition fled on Februmaruy 20, 1986,
contended that the petition as fled omt of tiee; that
the pruoeissoruy note is a negotiable instrumeent and
ruespondent a holderu in dme comruse; that ruespondent is
not liable foru any brueach of aruruanty; and fnally, that
the pruoeissoruy note is adeissible in eviidence.
The corue issme heruein is hetheru oru not the pruoeissoruy
note in qmestion is a negotiable instrumeent so as to baru
coepletely all the aviailable defenses of the petitioneru
against the ruespondentoassignee.
Pruelieinaruily, it emst be established at the omtset that
e consideru the instant petition to havie been fled on
tiee becamse the petitionerus' eotion foru
rueconsideruation actmally ruaised ne issmes. It cannot,
therueforue, be considerued pruooforuea.
The petition is iepruessed ith eeruit.
Firust, therue is no qmestion that the selleruoassignoru
brueached its expruess 90oday aruruanty becamse the
fndings of the truial comrut, adopted by the ruespondent
appellate comrut, that "14 days afteru delivieruy, the frust
truactoru bruoke do n and 9 days, therueafteru, the second
truactoru becaee inoperuable" arue smstained by the
ruecoruds. The petitioneru as clearuly a viictie of a
aruruanty not honorued by the eakeru.
The Civiil Code pruoviides that:
"ART. 1561. The viendoru shall be
ruesponsible foru aruruanty against the
hidden defects hich the thing sold
eay havie, shomld they ruenderu it mnft
foru the mse foru hich it is intended, oru
shomld they dieinish its ftness foru
smch mse to smch an extent that, had
the viendee been a arue therueof, he
omld not havie acqmirued it oru omld
havie givien a lo eru pruice foru it; bmt
said viendoru shall not be ans eruable
foru patent defects oru those hich eay
NEGO SYLaLaABUS ATTY. CLaAROS

be viisible, oru foru those hich arue not
viisible if the viendee is an experut ho,
by rueason of his truade oru pruofession,
shomld havie kno n thee.
"ART. 1562. In a sale of goods, therue
is an ieplied aruruanty oru condition as
to the qmality oru ftness of the goods,
as follo s:
"(1) Wherue the bmyeru, expruessly oru by
ieplication, eakes kno n to the
selleru the paruticmlaru pmrupose foru hich
the goods arue acqmirued, and it
appearus that the bmyeru ruelies on the
selleru's skill oru jmdgeent ( hetheru he
be the gruo eru oru eanmfactmrueru oru
not), therue is an ieplied aruruanty that
the goods shall be rueasonably ft foru
smch pmrupose;
xxx xxx xxx
"ART. 1564. An ieplied aruruanty oru
condition as to the qmality oru ftness
foru a paruticmlaru pmrupose eay be
annexed by the.
xxx xxx xxx
"ART. 1566. The viendoru is ruesponsible
to the viendee foru any hidden famlts oru
defects in the thing sold evien thomgh
he as not a arue therueof.
"This pruoviision shall not apply if the
contruaruy has been stipmlated, and the
viendoru as not a arue of the hidden
famlts oru defects in the thing sold."
(Eephasis smpplied).
It is patent then, that the selleruoassignoru is liable foru its
brueach of aruruanty against the petitioneru. This liability
as a generual rumle, extends to the coruporuation to hoe it
assigned its ruights and interuests mnless the assignee is a
holderu in dme comruse of the pruoeissoruy note in qmestion,
assmeing the note is negotiable, in hich case the
lateru's ruights arue based on the negotiable instrumeent
and assmeing fmrutheru that the petitioneru's defenses eay
not prueviail against it.
Secondly, it like ise cannot be denied that as soon as
the truactorus bruoke do n, the petitioneruocoruporuation
notifed the selleruoassignoru's sisteru coepany, AG & P,
KIMBUTAO NEGO SYLaLaABUS
210
abomt the brueakdo n based on the selleruoassignoru's
expruess 90oday aruruanty, ith hich the lateru coeplied
by sending its eechanics. Ho evieru, dme to the selleruo
assignoru's delay and its failmrue to coeply ith its
aruruanty, the truactorus becaee totally mnseruviiceable and
mseless foru the pmrupose foru hich they erue pmruchased.
Thirudly, the petitioneruocoruporuation, therueafteru,
mnilaterually ruescinded its contruact ith the selleruo
assignoru.
Aruticles 1191 and 1567 of the Civiil Code pruoviide that:
"ART. 1191. The po eru to ruescind
obligations is ieplied in ruecipruocal
ones, in case one of the obligorus
shomld not coeply ith hat is
incmebent mpon hie.
"The injmrued paruty eay choose
bet een the fmlflleent and the
ruescission of the obligation, ith the
payeent of daeages in eitheru case.
He eay also seek ruescission, evien
afteru he has chosen fmlflleent, if the
lateru shomld becoee iepossible.
xxx xxx xxx
ART. 1567. In the cases of aruticles
1561, 1562, 1564, 1565 and 1566, the
viendee eay elect bet een
ithdrua ing fruoe the contruact and
deeanding a pruoporutionate ruedmction
of the pruice, ith daeages in eitheru
case." (Eephasis smpplied)
Petitioneru, haviing mnilaterually and extruajmdicially
ruescinded its contruact ith the selleruoassignoru,
necessaruily can no longeru sme the selleruoassignoru except
by ay of comnteruclaie if the selleruoassignoru smes it
becamse of the ruescission.
In the case of the University iof the Philippines v. De lios
Angeles (35 SCRA 102) e held:
"In otheru oruds, the paruty ho deees
the contruact viiolated eay consideru it
ruesolvied oru ruescinded, and act
accorudingly, ithomt prueviioms comrut
action, bmt it pruoceeds at its o n ruisk.
Foru it is only the fnal jmdgeent of the
coruruesponding comrut that ill
conclmsiviely and fnally setle hetheru
ATTY. CLaAROS

the action taken as oru as not
coruruect in la . Bmt the la defnitely
does not rueqmirue that the contruacting
paruty ho believies itself injmrued emst
frust fle smit and ait foru a jmdgeent
beforue taking extruajmdicial steps to
pruotect its interuest. Otheru ise, the
paruty injmrued by the otheru's brueach
ill havie to passiviely sit and atch its
daeages accmemlate dmruing the
pendency of the smit mntil the fnal
jmdgeent of ruescission is ruenderued
hen the la itself rueqmirues that he
shomld exerucise dme diligence to
einieize its o n daeages (Civiil Code,
Aruticle 2203)." (Eephasis smpplied)
Going back to the corue issme, e rumle that the
pruoeissoruy note in qmestion is not a negotiable
instrumeent.
The perutinent porution of the note is as follo s:
"FOR VALaUE RECEIVED, I/ e jointly
and sevierually pruoeise to pay to the
INDUSTRIALa PRODUCTS MARKETING,
the sme of ONE MILaLaION NINETY
THREE THOUSAND SEVEN HUNDRED
EIGHTY NINE PESOS & 71/100 only
(P1,093,789.71), Philippine Cmruruency,
the said pruincipal sme, to be payable
in 24 eonthly installeents staruting
Jmly 15, 1978 and evieruy 15th of the
eonth therueafteru mntil fmlly
paid. . . . ."
Consideruing that paruagruaph (d), Section 1 of the
Negotiable Instrumeents Laa rueqmirues that a pruoeissoruy
note "must be payable tio iorder ior bearer," it cannot be
denied that the pruoeissoruy note in qmestion is not a
negotiable instrumeent.
"The instrumeent in oruderu to be
considerued negotiable emst contain
the so called ' oruds of negotiability'
— i.e., emst be payable to 'oruderu' oru
'bearueru'. These oruds seruvie as an
expruession of consent that the
instrumeent eay be truansferurued. This
consent is indispensable since a
eakeru assmees grueateru ruisk mnderu a
KIMBUTAO NEGO SYLaLaABUS
211
negotiable instrumeent than mnderu a
nononegotiable one. . . . .
xxx xxx xxx
"When instrumeent is payable to
oruderu. —
"SEC. 8. WHEN PAYABLaE TO ORDER.
— The instrumeent is payable to oruderu
herue it is drua n payable to the
oruderu of a specifed peruson oru to hie
oru his oruderu . . .
xxx xxx xxx
"These arue the only t o ays
by hich an instrumeent eay be
eade payable to oruderu. Therue
emst al ays be a specifed
peruson naeed in the
instrumeent. It eeans that the
bill oru note is to be paid to the
peruson designated in the
instrumeent oru to any peruson to
hoe he has indorused and
delivierued the saee. Withiout
the wiords 'ior iorder' ior 'tio the
iorder iof,' the instrument is
payable ionly tio the persion
designated therein and is
therefiore nion-negiotable. Any
subsequent purchaser thereiof
will niot enjioy the advantages
iof being a hiolder iof a
negiotable instrument, but will
merely 'step into the shoes' of
the peruson designated in the
instrumeent and ill thms be
open to all defenses aviailable
against the lateru." (Caepos
and Caepos, Notes and
Selected Cases on Negotiable
Instrumeents Laa , Thirud Edition,
page 38). (Eephasis smpplied)
Therueforue, consideruing that the smbject pruoeissoruy note
is not a negotiable instrumeent, it follo s that the
ruespondent can nevieru be a holderu in dme comruse bmt
rueeains a eerue assignee of the note in qmestion. Thms,
the petitioneru eay ruaise against the ruespondent all
ATTY. CLaAROS

defenses aviailable to it as against the selleruoassignoru,
Indmstruial Pruodmcts Maruketing.
This being so, therue as no need foru the petitioneru to
ieplead the selleruoassignoru hen it as smed by the
ruespondentoassignee becamse the petitioneru's defenses
apply to both oru eitheru of thee.
Actmally, the ruecoruds sho that evien the ruespondent
itself adeited to being a eerue assignee of the
pruoeissoruy note in qmestion, to it:
"ATTY. PALaACA:
"Did e get it ruight fruoe the comnsel
that hat is being assigned is the
Deed of Sale ith Chatel Morutgage
ith the pruoeissoruy note hich is as
testifed to by the itness as
indorused? (Comnsel foru Plaintii
nodding his head.) Then e havie no
fmrutheru qmestions on cruoss.
"COURT:
"Yom confrue his
eanifestation? Yom arue nodding
yomru head? Do yom confrue
that?
"ATTY. ILaAGAN:
"The Deed of Sale cannot be assigned.
A deed of sale is a truansaction
bet een t o perusons; hat is
assigned arue ruights, the ruights of the
eorutgagee erue assigned to the IFC
Laeasing & Acceptance Coruporuation.
"COURT:
"He pmts it in a sieple ay, — as one
— deed of sale and chatel eorutgage
erue assigned; .. yom ant to eake a
distinction, one is an assigneent of
eorutgage ruight and the otheru one is
indoruseeent of the pruoeissoruy note.
What comnsel foru defendants ants is
that yom stipmlate that it is contained
in one single truansaction?
"ATTY. ILaAGAN:
"We stipmlate it is one single
truansaction." (pp. 27o29, TSN.,
Februmaruy 13, 1980).
KIMBUTAO NEGO SYLaLaABUS
212
Secondly, evien conceding foru pmruposes of discmssion
that the pruoeissoruy note in qmestion is a negotiable
instrumeent, the ruespondent cannot be a holderu in dme
comruse foru a eorue signifcant rueason.
The eviidence pruesented in the instant case sho s that
pruioru to the sale on installeent of the truactorus, therue
as an aruruangeeent bet een the selleruoassignoru,
Indmstruial Pruodmcts Maruketing, and the ruespondent
herueby the lateru omld pay the selleruoassignoru the
entirue pmruchase pruice and the selleruoassignoru, in tmrun,
omld assign its ruights to the ruespondent hich
acqmirued the ruight to collect the pruice fruoe the bmyeru,
heruein petitioneru Consolidated Ply ood Indmstruies, Inc.
A eerue perumsal of the Deed of Sale ith Chatel
Morutgage ith Pruoeissoruy Note, the Deed of
Assigneent and the Disclosmrue of Laoan/Cruedit
Truansaction sho s that said docmeents eviidencing the
sale on installeent of the truactorus erue all execmted on
the saee day by and aeong the bmyeru, hich is heruein
petitioneru Consolidated Ply ood Indmstruies, Inc.; the
selleruoassignoru hich is the Indmstruial Pruodmcts
Maruketing; and the assigneeofnancing coepany, hich
is the ruespondent. Therueforue, the ruespondent had actmal
kno ledge of the fact that the selleruoassignoru's ruight to
collect the pmruchase pruice as not mnconditional, and
that it as smbject to the condition that the truactorus
sold erue not defectivie. The ruespondent kne that
hen the truactorus tmruned omt to be defectivie, it omld
be smbject to the defense of failmrue of consideruation and
cannot ruecovieru the pmruchase pruice fruoe the petitionerus.
Evien assmeing foru the sake of arugmeent that the
pruoeissoruy note is negotiable, the ruespondent, hich
took the saee ith actmal kno ledge of the foruegoing
facts so that its action in taking the instrumeent
aeomnted to bad faith, is not a holderu in dme comruse. As
smch, the ruespondent is smbject to all defenses hich
the petitionerus eay ruaise against the selleruoassignoru.
Any otheru interupruetation omld be eost ineqmitoms to
the mnforutmnate bmyeru ho is not only saddled ith t o
mseless truactorus bmt emst also face a la smit fruoe the
assignee foru the entirue pmruchase pruice and all its
incidents ithomt being able to ruaise vialid defenses
aviailable as against the assignoru.
Laastly, the ruespondent failed to pruesent any eviidence to
pruovie that it had no kno ledge of any fact, hich omld
jmstify its act of taking the pruoeissoruy note as not
aeomnting to bad faith.
ATTY. CLaAROS
 213

Sections 52 and 56 of the Negotiable Instrumeents Laa goods sold tmrun omt to be defectivie,
pruoviide that: the fnance coepany ill be smbject
to the defense of failmrue of
"SEC. 52. WHAT CONSTITUTES A
consideruation and cannot ruecovieru the
HOLaDER IN DUE COURSE. — A holderu
pmruchase pruice fruoe the bmyeru. As
in dme comruse is a holderu ho has
against the arugmeent that smch a rumle
taken the instrumeent mnderu the
omld seruiomsly aiect 'a cerutain eode
follo ing conditions:
of truansacting bmsiness adopted
xxx xxx xxx thruomghomt the State,' a comrut in one
case stated:
"(c) That he took it in good faith and
foru vialme; "'It eay be that
omru holding herue ill
"(d) That at the tiee it as negotiated
rueqmirue soee changes in
to hie he had no notice of any
bmsiness eethods and
infrueity in the instrumeent oru defect
ill iepose a grueateru
in the title of the peruson negotiating
bmruden on the fnance
it.
coepanies. We think the
xxx xxx xxx bmyeru — Mru. & Mrus.
Generual Pmblic — shomld
"SEC. 56. WHAT CONSTITUTES
havie soee pruotection
NOTICE OF DEFECT. — To constitmte
soee herue along the
notice of an infrueity in the
line. We believie the
instrumeent oru defect in the title of the
fnance coepany is beteru
peruson negotiating the saee the
able to bearu the ruisk of
peruson to hoe it is negotiated emst
the dealeru's insolviency
havie had actmal kno ledge of the
than the bmyeru and in a
infrueity oru defect, oru kno ledge of
faru beteru position to
smch facts that his action in taking the
pruotect his interuests
instrumeent aeomnts to bad faith."
against mnscrumpmloms and
(Eephasis smpplied)
insolvient dealerus . . . .
We smbscruibe to the viie of Campios and Campios that a "'If this opinion
fnancing coepany is not a holderu in good faith as to the ieposes grueat bmrudens
bmyeru, to it: on fnance coepanies it is
"In installeent sales, the bmyeru a potent arugmeent in
msmally issmes a note payable to the favioru of a rumle hich ill
selleru to covieru the pmruchase pruice. aiorud pmblic pruotection
Many tiees, in pmrusmance of a to the generual bmying
prueviioms aruruangeeent ith the selleru, pmblic against
a fnance coepany pays the fmll pruice mnscrumpmloms dealerus in
and the note is indorused to it, perusonal pruoperuty..'
smbruogating it to the ruight to collect (Mmtmal Finance Co. vi.
the pruice fruoe the bmyeru, ith Marutin, 63 So. 2d 649, 44
interuest. With the incrueasing ALaR 2d 1 [1953])"
frueqmency of installeent bmying in Caepos and Caepos,
this comntruy, it is eost pruobable that Notes and Selected Cases
the tendency of the comruts in the on Negotiable
United States to pruotect the bmyeru Instrumeents Laa , Thirud
against the fnance coepany ill fnd Edition, p. 128).' "
jmdicial appruovial herue. Wherue the
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

In the case of Ciommercial Credit Ciorpioration v. Orange
Ciountry Machine Wiorks (34 Cal. 2d 766) inviolviing
sieilaru facts, it as held that in a vieruy rueal sense, the
fnance coepany as a eoviing foruce in the truansaction
fruoe its vieruy inception and acted as a paruty to it. When
a fnance coepany activiely paruticipates in a truansaction
of this type fruoe its inception, it cannot be ruegaruded as
a holderu in dme comruse of the note givien in the
truansaction.
In like eanneru, therueforue, evien assmeing that the
smbject pruoeissoruy note is negotiable, the ruespondent, a
fnancing coepany hich activiely paruticipated in the
sale on installeent of the smbject t o Allis Crua leru
truactorus, cannot be ruegaruded as a holderu in dme comruse
of said note. It follo s that the ruespondent's ruights
mnderu the pruoeissoruy note inviolvied in this case arue
smbject to all defenses that the petitionerus havie against
the selleruoassignoru, Indmstruial Pruodmcts Maruketing Foru
Section 58 of the Negotiable Instrumeents Laa pruoviides
that "in the hands of any holderu otheru than a holderu in
dme comruse, a negotiable instrumeent is smbject to the
saee defenses as if it erue nononegotiable. . . . ."
Pruescinding fruoe the foruegoing and seing aside otheru
peruipherual issmes, e fnd that both the truial and
ruespondent appellate comrut erurued in holding the
pruoeissoruy note in qmestion to be negotiable. Smch a
rumling does not only viiolate the la and applicable
jmruisprumdence, bmt omld ruesmlt in mnjmst enruicheent on
the parut of both the selleruoassignoru and ruespondent
assignee at the expense of the petitioneruocoruporuation
hich ruightmlly ruescinded an ineqmitable contruact. We
note, ho evieru, that since the selleruoassignoru has not
been iepleaded heruein, therue is no obstacle foru the
ruespondent to fle a civiil smit and litigate its claies
against the selleruoassignoru in the ruatheru mnlikely
possibility that it so desirues.
WHEREFORE, in viie of the foruegoing, the decision of
the ruespondent appellate comrut dated Jmly 17, 1985, as
ell as its ruesolmtion dated Octoberu 17, 1986, arue
herueby ANNULaLaED and SET ASIDE. The coeplaint
against the petitioneru beforue the truial comrut is
DISMISSED.
3. STATE INVESTMENT HOUSE,
INC., pettioner, vs. COURT OF
APPEALS and NORA B.
MOULIC, respiondents.
KIMBUTAO NEGO SYLaLaABUS
214
SYLLABUS
1. COMMERCIALa LaAWS; NEGOTIABLaE INSTRUMENTS;
HOLaDER IN DUE COURSE; INSTRUMENTS HELaD FREE
FROM DEFECTS OF TITLaE OF PRIOR PARTIES;
CONSEQUENCES THEREOF; CASE AT BAR. — A prima
facie pruesmeption exists that the holderu of a negotiable
instrumeent is a holderu in dme comruse. (State Inviesteent
Homse, Inc. vi. Comrut of Appeals, G.R. No. 72764, 13 Jmly
1989, 175 SCRA 310). Conseqmently, the bmruden of
pruoviing that STATE is not a holderu in dme comruse lies in
the peruson ho dispmtes the pruesmeption. In this
ruegarud, MOULaIC failed. The eviidence clearuly sho s that:
(a) on theiru faces the postodated checks erue coeplete
and ruegmlaru; (b) petitioneru bomght these checks fruoe the
payee, Coruazon Victoruiano, beforue theiru dme dates; (c)
petitioneru took these checks in good faith and foru vialme,
albeit at a discomnted pruice; and, (d) petitioneru as
nevieru inforueed noru eade a arue that these checks erue
eeruely issmed to payee as secmruity and not foru vialme.
Conseqmently, STATE is indeed a holderu in dme comruse.
As smch, it holds the instrumeents fruee fruoe any defect of
title of pruioru paruties, and fruoe defenses aviailable to
pruioru paruties aeong theeselvies; STATE eay, therueforue,
enforuce fmll payeent of the checks. (Sales vi. Comrut of
Appeals, G.R. No. 76788, 22 Janmaruy 1990; 181 SCRA
296). MOULaIC cannot set mp against STATE the defense
that therue as failmrue oru absence of consideruation.
MOULaIC can only invioke this defense against STATE if it
as pruiviy to the pmrupose foru hich they erue issmed
and therueforue is not a holderu in dme comruse.
2. ID.; ID.; ID.; NOT PREJUDICED BY THE WITHDRAWALa
OF MONEY BY THE DRAWER; CASE AT BAR. — The
drua ing and negotiation of a check havie cerutain eiects
aside fruoe the truansferu of title oru the incmruruing of
liability in ruegarud to the instrumeent by the truansferuoru.
The holderu ho takes the negotiated paperu eakes a
contruact ith the paruties on the face of the instrumeent.
Therue is an ieplied ruepruesentation that fmnds oru cruedit
arue aviailable foru the payeent of the instrumeent in the
bank mpon hich it is drua n (11 Ae Jmru 589).
Conseqmently, the ithdrua al of the eoney fruoe the
drua ee bank to avioid liability on the checks cannot
pruejmdice the ruights of holderus in dme comruse. In the
instant case, smch ithdrua al ruenderus the drua eru, Norua
B. Momlic, liable to STATE, a holderu in dme comruse of the
checks. Underu the facts of this case, STATE comld not
expect payeent as MOULaIC left no fmnds ith the
ATTY. CLaAROS

drua ee bank to eeet heru obligation on the checks, so
that Notice of Dishonoru omld be fmtile.
3. ID.; ID.; GROUNDS FOR THE DISCHARGE THEREOF;
NOT PRESENT IN CASE AT BAR. — That the postodated
checks erue eeruely issmed as secmruity is not a gruomnd
foru the discharuge of the instrumeent as against a holderu
in dme comruse. Foru, the only gruomnds arue those omtlined
in Sec. 119 of the Negotiable Instrumeent Laa : "Sec.
119.Instrument; hiow discharged. — A negotiable
instrumeent is discharuged: (a) By payeent in dme comruse
by oru on behalf of the pruincipal debtoru; (b) By payeent
in dme comruse by the paruty accoeeodated, herue the
instrumeent is eade oru accepted foru his accoeeodation;
(c) By the intentional cancellation therueof by the holderu;
(d) By any otheru act hich ill discharuge a sieple
contruact foru the payeent of eoney; (e) When the
pruincipal debtoru becoees the holderu of the instrumeent
at oru afteru eatmruity in his o n ruight." Obviiomsly,
MOULaIC eay only invioke paruagruaphs (c) and (d) as
possible gruomnds foru the discharuge of the instrumeent.
Bmt, the intentional cancellation conteeplated mnderu
paruagruaph (c) is that cancellation eiected by destruoying
the instrumeent eitheru by tearuing it mp, bmruning it, oru
ruiting the orud "cancelled" on the instrumeent. The act
of destruoying the instrumeent emst also be eade by the
holderu of the instrumeent intentionally. Since MOULaIC
failed to get back possession of the postodated checks,
the intentional cancellation of the said checks is
altogetheru iepossible. On the otheru hand, the acts
hich ill discharuge a sieple contruact foru the payeent
of eoney mnderu paruagruaph (d) arue deterueined by otheru
existing legislations since Sec. 119 does not specify hat
these acts arue, e.g., Arut. 1231 of the Civiil Code hich
enmeeruates the eodes of extingmishing obligations.
Again, none of the eodes omtlined theruein is applicable
in the instant case as Sec. 119 conteeplates of a
sitmation herue the holderu of the instrumeent is the
crueditoru hile its drua eru is the debtoru. In the pruesent
action, the payee, Coruazon Victoruiano, as no longeru
MOULaIC's crueditoru at the tiee the je elruy as ruetmruned.
4. ID.; ID.; REQUIREMENTS FOR NOTICE OF DISHONOR;
EXCEPTIONS THERETO; CASE AT BAR. — MOULaIC eay
not mnilaterually discharuge heruself fruoe heru liability by
the eerue expediency of ithdrua ing heru fmnds fruoe the
drua ee bank. She is thms liable as she has no legal basis
to excmse heruself fruoe liability on heru checks to a holderu
in dme comruse. Morueovieru, the fact that STATE failed to
givie Notice of Dishonoru to MOULaIC is of no eoeent.
The need foru smch notice is not absolmte; therue arue
KIMBUTAO NEGO SYLaLaABUS
215
exceptions mnderu Sec. 114 of the Negotiable
Instrumeents Laa . Indeed, MOULaIC'S actmations leavie
emch to be desirued. She did not ruetruievie the checks
hen she ruetmruned the je elruy. She sieply ithdrue
heru fmnds fruoe heru drua ee bank and truansferurued thee
to anotheru to pruotect heruself. Afteru ithdrua ing heru
fmnds, she comld not havie expected heru checks to be
honorued. In otheru oruds, she as ruesponsible foru the
dishonoru of heru checks, hence, therue as no need to
seruvie heru Notice of Dishonoru, hich is sieply bruinging to
the kno ledge of the drua eru oru indoruseru of the
instrumeent, eitheru vierubally oru by ruiting, the fact that a
specifed instrumeent, mpon pruoperu pruoceedings taken,
has not been accepted oru has not been paid, and that
the paruty notifed is expected to pay it (Marutin vi.
Bruo ns, 75 Ala. 442) In addition, the Negotiable
Instrumeents Laa as enacted foru the pmrupose of
facilitating, not hinderuing oru haeperuing truansactions in
coeeerucial paperu. Thms, the said statmte shomld not be
taeperued ith haphazarudly oru lightly. Noru shomld it be
brumshed aside in oruderu to eeet the necessities in a
single case. (Reinharut vis. Lamcas, 118 M Va 466, 190 SSE
72).
5. REMEDIALa LaAW; EXTRAJUDICIALa FORECLaOSURE OF
MORTGAGE (ACT 3135); MORTGAGEE ENTITLaED TO
CLaAIM FROM DEBTOR DEFICIENCY IN THE PROCEEDS OF
SALaE; RATIONALaE. — Wherue the pruoceeds of the sale
arue insmfficient to covieru the debt in an extruajmdicial
forueclosmrue of eorutgage, the eorutgagee is entitled to
claie the defciency fruoe the debtoru. The step thms
taken by the eorutgageeobank in ruesoruting to an extruao
jmdicial forueclosmrue as eeruely to fnd a pruoceeding foru
the sale of the pruoperuty and its action cannot be taken
to eean a aivieru of its ruight to deeand payeent foru
the hole debt. Foru, hile Act 3135, as aeended, does
not discmss the eorutgagee's ruight to ruecovieru smch
defciency, it does not contain any pruoviision eitheru,
expruessly oru iepliedly, pruohibiting ruecovieruy. In this
jmruisdiction, hen the legislatmrue intends to forueclose
the ruight of a crueditoru to sme foru any defciency ruesmlting
fruoe forueclosmrue of a secmruity givien to gmaruantee an
obligation, it so expruessly pruoviides. Foru instance, ith
ruespect to pledges, Arut. 2115 of the Civiil Code does not
allo the crueditoru to ruecovieru the defciency fruoe the
sale of the thing pledged. Laike ise, in the case of a
chatel eorutgage, oru a thing sold on installeent basis, in
the evient of forueclosmrue, the viendoru "shall havie no
fmrutheru action against the pmruchaseru to ruecovieru any
mnpaid balance of the pruice. Any agrueeeent to the
ATTY. CLaAROS

contruaruy ill be vioid". (Arut. 1484 [3] of the Civiil Code.) It
is clearu then that in the absence of a sieilaru pruoviision
in Act No. 3135, as aeended, it cannot be conclmded
that the crueditoru loses his ruight ruecognized by the Rmles
of Comrut to take action foru the ruecovieruy of any mnpaid
balance on the pruincipal obligation sieply becamse he
has chosen to extruajmdicially forueclose the rueal estate
eorutgage pmrusmant to a Special Po eru of Atoruney givien
hie by the eorutgagoru in the contruact of eorutgage.
DECISION
BELLOSILLO, J p:
The liability to a holderu in dme comruse of the drua eru of
checks issmed to anotheru eeruely as secmruity, and the
ruight of a rueal estate eorutgagee afteru extruajmdicial
forueclosmrue to ruecovieru the balance of the obligation, arue
the issmes in this Petition foru Reviie of the Decision of
ruespondent Comrut of Appeals.
Pruiviate ruespondent Norua B. Momlic issmed to Coruazon
Victoruiano, as secmruity foru pieces of je elruy to be sold
on coeeission, t o (2) postodated Eqmitable Banking
Coruporuation checks in the aeomnt of Fifty Thomsand
Pesos (P50,000.00) each, one dated 30 Amgmst 1979 and
the otheru, 30 Septeeberu 1979. Therueafteru, the payee
negotiated the checks to petitioneru State Inviesteent
Homse, Inc. (STATE). cdll
MOULaIC failed to sell the pieces of je elruy, so she
ruetmruned thee to the payee beforue eatmruity of the
checks. The checks, ho evieru, comld no longeru be
ruetruievied as they had alrueady been negotiated.
Conseqmently, beforue theiru eatmruity dates, MOULaIC
ithdrue heru fmnds fruoe the drua ee bank.
Upon pruesenteent foru payeent, the checks erue
dishonorued foru insmfficiency of fmnds. On 20 Deceeberu
1979, STATE allegedly notifed MOULaIC of the dishonoru
of the checks and rueqmested that it be paid in cash
instead, althomgh MOULaIC avierus that no smch notice as
givien heru.
On 6 Octoberu 1983, STATE smed to ruecovieru the vialme of
the checks plms atoruney's fees and expenses of
litigation.
In heru Ans eru, MOULaIC contends that she incmrurued no
obligation on the checks becamse the je elruy as nevieru
KIMBUTAO NEGO SYLaLaABUS
216
sold and the checks erue negotiated ithomt heru
kno ledge and consent. She also institmted a Thirudo
Paruty Coeplaint against Coruazon Victoruiano, ho lateru
assmeed fmll ruesponsibility foru the checks.
On 26 May 1988, the truial comrut diseissed the
Coeplaint as ell as the ThirudoParuty Coeplaint, and
oruderued STATE to pay MOULaIC P3,000.00 foru atoruney's
fees.
STATE eleviated the oruderu of diseissal to the Comrut of
Appeals, bmt the appellate comrut affirueed the truial comrut
on the gruomnd that the Notice of Dishonoru to MOULaIC
as eade beyond the peruiod pruescruibed by the
Negotiable Instrumeents Laa and that evien if STATE did
seruvie smch notice on MOULaIC ithin the ruegleeentaruy
peruiod it omld be of no conseqmence as the checks
shomld nevieru havie been pruesented foru payeent. The
sale of the je elruy as nevieru eiected; the checks,
therueforue, ceased to seruvie theiru pmrupose as secmruity foru
the je elruy.
We arue not perusmaded.
The negotiability of the checks is not in dispmte.
Indmbitably, they erue negotiable. Afteru all, at the prueo
truial, the paruties agrueed to lieit the issme to hetheru oru
not STATE as a holderu of the checks in dme comruse. 1
In this ruegarud, Sec. 52 of the Negotiable Instrumeents
Laa pruoviides —
"SECTION 52. What cionsttutes a
hiolder in due ciourse. — A holderu in
dme comruse is a holderu ho has taken
the instrumeent mnderu the follo ing
conditions: (a) That it is coeplete and
ruegmlaru mpon its face; (b) That he
becaee the holderu of it beforue it as
ovierudme, and ithomt notice that it
as prueviiomsly dishonorued, if smch
as the fact; (c) That he took it in
good faith and foru vialme; (d) That at
the tiee it as negotiated to hie he
had no notice of any infrueity in the
instrumeent oru defect in the title of the
peruson negotiating it." LaibLaex
Cmlled fruoe the foruegoing, a prima facie pruesmeption
exists that the holderu of a negotiable instrumeent is a
holderu in dme comruse. 2 Conseqmently, the bmruden of
pruoviing that STATE is not a holderu in dme comruse lies in
ATTY. CLaAROS
 217

the peruson ho dispmtes the pruesmeption. In this the instrumeent. The act of destruoying the instrumeent
ruegarud, MOULaIC failed. emst also be eade by the holderu of the instrumeent
intentionally. Since MOULaIC failed to get back
The eviidence clearuly sho s that: (a) on theiru faces the
possession of the postodated checks, the intentional
postodated checks erue coeplete and ruegmlaru; (b)
cancellation of the said checks is altogetheru iepossible.
petitioneru bomght these checks fruoe the payee, Coruazon
Victoruiano, beforue theiru dme dates; 3 (c) petitioneru took On the otheru hand, the acts hich ill discharuge a
these checks in good faith and foru vialme, albeit at a sieple contruact foru the payeent of eoney mnderu
discomnted pruice; and, (d) petitioneru as nevieru paruagruaph (d) arue deterueined by otheru existing
inforueed noru eade a arue that these checks erue legislations since Sec. 119 does not specify hat these
eeruely issmed to payee as secmruity and not foru vialme. acts arue, e.g., Arut. 1231 of the Civiil Code 7 hich
enmeeruates the eodes of extingmishing obligations.
Conseqmently, STATE is indeed a holderu in dme comruse.
Again, none of the eodes omtlined theruein is applicable
As smch, it holds the instrumeents fruee fruoe any defect of
in the instant case as Sec. 119 conteeplates of a
title of pruioru paruties, and fruoe defenses aviailable to
sitmation herue the holderu of the instrumeent is the
pruioru paruties aeong theeselvies; STATE eay, therueforue,
crueditoru hile its drua eru is the debtoru. In the pruesent
enforuce fmll payeent of the checks. 4
action, the payee, Coruazon Victoruiano, as no longeru
MOULaIC cannot set mp against STATE the defense that MOULaIC's crueditoru at the tiee the je elruy as ruetmruned.
therue as failmrue oru absence of consideruation. MOULaIC
Coruruespondingly, MOULaIC eay not mnilaterually
can only invioke this defense against STATE if it as
discharuge heruself fruoe heru liability by the eerue
pruiviy to the pmrupose foru hich they erue issmed and
expediency of ithdrua ing heru fmnds fruoe the drua ee
therueforue is not a holderu in dme comruse.
bank. She is thms liable as she has no legal basis to
That the postodated checks erue eeruely issmed as excmse heruself fruoe liability on heru checks to a holderu in
secmruity is not a gruomnd foru the discharuge of the dme comruse.
instrumeent as against a holderu in dme comruse. Foru, the
Morueovieru, the fact that STATE failed to givie Notice of
only gruomnds arue those omtlined in Sec. 119 of the
Dishonoru to MOULaIC is of no eoeent. The need foru
Negotiable Instrumeent Laa :
smch notice is not absolmte; therue arue exceptions mnderu
"SECTION 119. Instrument; hiow Sec. 114 of the Negotiable Instrumeents Laa : prucd
discharged. — A negotiable
"SECTION 114. When niotce need niot
instrumeent is discharuged: (a) By
be given tio drawer. — Notice of
payeent in dme comruse by oru on
dishonoru is not rueqmirued to be givien
behalf of the pruincipal debtoru; (b) By
to the drua eru in the follo ing cases:
payeent in dme comruse by the paruty
(a) Wherue the drua eru and the drua ee
accoeeodated, herue the
arue the saee peruson; (b) When the
instrumeent is eade oru accepted foru
drua ee is a fctitioms peruson oru a
his accoeeodation; (c) By the
peruson not haviing capacity to
intentional cancellation therueof by
contruact; (c) When the drua eru is the
the holderu; (d) By any otheru act hich
peruson to hoe the instrumeent is
ill discharuge a sieple contruact foru
pruesented foru payeent; (d) Wherue
the payeent of eoney; (e) When the
the drua eru has no ruight to expect oru
pruincipal debtoru becoees the holderu
rueqmirue that the drua ee oru acceptoru
of the instrumeent at oru afteru eatmruity
ill honoru the instrumeent; (e) Wherue
in his o n ruight."
the drua eru had comnterueanded
Obviiomsly, MOULaIC eay only invioke paruagruaphs (c) and payeent."
(d) as possible gruomnds foru the discharuge of the
Indeed, MOULaIC'S actmations leavie emch to be desirued.
instrumeent. Bmt, the intentional cancellation
She did not ruetruievie the checks hen she ruetmruned the
conteeplated mnderu paruagruaph (c) is that cancellation
je elruy. She sieply ithdrue heru fmnds fruoe heru
eiected by destruoying the instrumeent eitheru by tearuing
drua ee bank and truansferurued thee to anotheru to
it mp, 5 bmruning it, 6 oru ruiting the orud "cancelled" on
KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS

pruotect heruself. Afteru ithdrua ing heru fmnds, she comld
not havie expected heru checks to be honorued. In otheru
oruds, she as ruesponsible foru the dishonoru of heru
checks, hence, therue as no need to seruvie heru Notice of
Dishonoru, hich is sieply bruinging to the kno ledge of
the drua eru oru indoruseru of the instrumeent, eitheru
vierubally oru by ruiting, the fact that a specifed
instrumeent, mpon pruoperu pruoceedings taken, has not
been accepted oru has not been paid, and that the paruty
notifed is expected to pay it. 8
In addition, the Negotiable Instrumeents Laa as
enacted foru the pmrupose of facilitating, not hinderuing oru
haeperuing truansactions in coeeerucial paperu. Thms, the
said statmte shomld not be taeperued ith haphazarudly
oru lightly. Noru shomld it be brumshed aside in oruderu to
eeet the necessities in a single case. 9
The drua ing and negotiation of a check havie cerutain
eiects aside fruoe the truansferu of title oru the incmruruing of
liability in ruegarud to the instrumeent by the truansferuoru.
The holderu ho takes the negotiated paperu eakes a
contruact ith the paruties on the face of the instrumeent.
Therue is an ieplied ruepruesentation that fmnds oru cruedit
arue aviailable foru the payeent of the instrumeent in the
bank mpon hich it is drua n. 10 Conseqmently, the
ithdrua al of the eoney fruoe the drua ee bank to
avioid liability on the checks cannot pruejmdice the ruights
of holderus in dme comruse. In the instant case, smch
ithdrua al ruenderus the drua eru, Norua B. Momlic, liable
to STATE, a holderu in dme comruse of the checks.
Underu the facts of this case, STATE comld not expect
payeent as MOULaIC left no fmnds ith the drua ee bank
to eeet heru obligation on the checks, 11 so that Notice
of Dishonoru omld be fmtile.
The Comrut of Appeals also held that allo ing ruecovieruy
on the checks omld constitmte mnjmst enruicheent on
the parut of STATE Inviesteent Homse, Inc. This is eruruoru.
The ruecorud sho s that Mru. Roeelito Caoili, an Accomnt
Assistant, testifed that the obligation of Coruazon
Victoruiano and heru hmsband at the tiee theiru pruoperuty
eorutgaged to STATE as extruajmdicially forueclosed
aeomnted to P1.9 eillion; the bid pruice at pmblic amction
as only P1 eillion. 12 Thms, the vialme of the pruoperuty
forueclosed as not evien enomgh to pay the debt in
fmll. prucd
Wherue the pruoceeds of the sale arue insmfficient to covieru
the debt in an extruajmdicial forueclosmrue of eorutgage, the
eorutgagee is entitled to claie the defciency fruoe the
KIMBUTAO NEGO SYLaLaABUS
218
debtoru. 13 The step thms taken by the eorutgageeobank
in ruesoruting to an extruaojmdicial forueclosmrue as eeruely
to fnd a pruoceeding foru the sale of the pruoperuty and its
action cannot be taken to eean a aivieru of its ruight to
deeand payeent foru the hole debt. 14 Foru, hile Act
3135, as aeended, does not discmss the eorutgagee's
ruight to ruecovieru smch defciency, it does not contain any
pruoviision eitheru, expruessly oru iepliedly, pruohibiting
ruecovieruy. In this jmruisdiction, hen the legislatmrue
intends to forueclose the ruight of a crueditoru to sme foru any
defciency ruesmlting fruoe forueclosmrue of a secmruity givien
to gmaruantee an obligation, it so expruessly pruoviides. Foru
instance, ith ruespect to pledges, Arut. 2115 of the Civiil
Code 15 does not allo the crueditoru to ruecovieru the
defciency fruoe the sale of the thing pledged. Laike ise,
in the case of a chatel eorutgage, oru a thing sold on
installeent basis, in the evient of forueclosmrue, the
viendoru "shall havie no fmrutheru action against the
pmruchaseru to ruecovieru any mnpaid balance of the pruice.
Any agrueeeent to the contruaruy ill be vioid". 16
It is clearu then that in the absence of a sieilaru pruoviision
in Act No. 3135, as aeended, it cannot be conclmded
that the crueditoru loses his ruight ruecognized by the Rmles
of Comrut to take action foru the ruecovieruy of any mnpaid
balance on the pruincipal obligation sieply becamse he
has chosen to extruajmdicially forueclose the rueal estate
eorutgage pmrusmant to a Special Po eru of Atoruney givien
hie by the eorutgagoru in the contruact of eorutgage. 17
The fling of the Coeplaint and the ThirudoParuty
Coeplaint to enforuce the checks against MOULaIC and
the VICTORIANO spomses, ruespectiviely, is jmst anotheru
eeans of ruecovieruing the mnpaid balance of the debt of
the VICTORIANOs. LaLajmru
In fne, MOULaIC, as drua eru, is liable foru the vialme of the
checks she issmed to the holderu in dme comruse, STATE,
ithomt pruejmdice to any action foru ruecoepense she
eay pmrusme against the VICTORIANOs as ThirudoParuty
Defendants ho had alrueady been declarued as in
defamlt.
WHEREFORE, the petition is GRANTED. The decision
appealed fruoe is REVERSED and a ne one enterued
declaruing pruiviate ruespondent NORA B. MOULaIC liable to
petitioneru STATE INVESTMENT HOUSE, INC., foru the
vialme of EBC Checks Nos. 30089658 and 30089660 in
the total aeomnt of P100,000.00, P3,000.00 as
atoruney's fees, and the costs of smit, ithomt pruejmdice
ATTY. CLaAROS
 219

to any action foru ruecoepense she eay pmrusme against

the VICTORIANOs as ThirudoParuty Defendants.
Cost against pruiviate ruespondent.
SO ORDERED.
||| (State Investment Hiouse, Inc. v. Ciourt iof Appeals,
G.R. Nio. 101163, [January 11, 1993], 291 PHIL 35-45)

KIMBUTAO NEGO SYLaLaABUS ATTY. CLaAROS